Calendar effect
The tendency of stocks to perform differently at different times, including such anomalies as the January effect, month-of-the-year effect, day-of-the- week effect, and holiday effect.
Call
An option that gives the right to buy the underlying futures contract. call date A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond for a specified call price.
Call money rate
Also called the broker loan rate, the interest rate that banks charge brokers to finance margin loans to investors. The broker charges the investor the call money rate plus a service charge.
Buying on margin
Call option
Also called a call, an option that grants the buyer the right to purchase the underlying from the writer.
Call price
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a specified call date.
Call protection
A feature of some callable bonds that establishes an initial period when the bonds may not be called.
Call provision
An embedded option granting a bond issuer the right to buy back all or part of the issue prior to maturity.
Call risk
The combination of cash flow uncertainty and reinvestment risk introduced by a call pro-vision.
Call swaption
A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The writer therefore becomes the fixed-rate receiver/floating rate payer.
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and expected return, and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification. The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk free security plus a risk premium.
Capital market
The market for trading long-term debt instruments (those that mature in more than one year).
Capital market line (CML)
The line defined by every combination of the risk-free asset and the market portfolio.
Capitalization method
A method of constructing a replicating portfolio in which the manager purchases a number of the largest-capitalized names in the index stock in proportion to their capitalization.
Capitalization ratios
Also called financial leverage ratios, ratios that compare debt to total capitalization and thus reflect the extent to which a corporation is trading on its equity. These ratios can be interpreted only in the context of the stability of industry and company earnings and cash flow.
Capitalized
Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives greater than one year.
Car
A loose quantity term sometimes used to describe a contract, e.g., "a car of bellies". Derived from the fact that quantities of the product specified in a contract used to correspond closely to the capacity of a railroad car.
Carry
Related: Net financing cost
Cash commodity
The actual physical commodity as distinguished from a futures contract.
Cash-equivalent items
Temporary investments of currently excess cash in short- term, high-quality investment media such as Treasury bills and bankers acceptances.
Cash flow matching
Also called dedicating a portfolio, an alternative to multiperiod immunization in which the manager matches the maturity of each element in the liability stream, working backward from the last liability to assure all required cash flows.
Cash markets
Also called spot markets, markets that involve the immediate delivery of a security or instrument. Related: Derivative markets.
Cash settlement contracts
Futures contracts, such as stock index futures, which settle for cash, not involving the delivery of the underlying.
Cash-surrender value
An amount the insurance company will pay if the policyholder ends a whole life insurance policy.
Certificate of deposit (CD)
Also called a time deposit, a certificate issued by a bank or thrift that indicates a specified sum of money has been deposited at the issuing depository institution. A CD bears a maturity date and a specified interest rate, and can be issued in any denomination.
CFTC
The Commodity Futures Trading Commission, the federal agency created by Congress to regulate futures trading. The Commodity Exchange Act of 1974 became effective April 21, 1975. Previously, futures trading had been regulated by the Commodity Exchange Authority of the USDA. characteristic line The market model applied to a single security. The slope of the line is a security's beta.
Chartists
Related: Technical analysts
Cheapest to deliver issue
The acceptable Treasury security with the highest implied repo rate, the rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date
Chicago Mercantile Exchange (CME)
A not-for-profit corporation owned by its members. Its primary functions are to provide a location for trading futures and options, collect and disseminate market information, maintain a clearing mechanism and to enforce trading rules.
Clean opinion
An auditor's opinion reflecting an unqualified acceptance of a company's financial statements.
Clearinghouse
An adjunct to a futures exchange through which transactions executed on the floor of the exchange are settled using a process of matching purchases and sales. A clearing organization is also charged with the proper conduct of delivery procedures and the adequate financing of the entire operation.
Clearing member
A member firm of the Clearing House. Each Clearing Member must also be a member of the exchange. Not all members of the Exchange, however, are members of the clearing organization. All trades of a non-clearing member must be registered with and eventually settled through a Clearing Member.
Close, the
The period at the end of the trading session. Sometimes used to refer to closing price.
Opening, the
Closed-end fund
An investment company that sells shares like any other corporation and usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or below its net asset value.
Open-end fund
Closing range
Also known as the range. The high and low prices, or bids and offers, recorded during the period designated as the official close. Related: Settlement price.
Cluster analysis
A statistical technique that identifies clusters of stocks whose returns are highly correlated within each cluster and relatively uncorrelated between clusters. Cluster analysis has identified groupings such as growth, cyclical, stable, and energy stocks.
Coefficient of determination
A measure of the goodness of fit of the relationship between a dependent and independent variable in a regression analysis-for instance, the percentage of the variation in the return of an asset explained by the market portfolio return.
Collateral trust bonds
A bond in which the issuer (often a holding company) grants investors a lien on stocks, notes, bonds, or other financial asset as security. Compare mortgage bond.
Collateralized mortgage obligation (CMO)
A security backed by a pool of pass- throughs, structured so that there are several classes of bondholders with varying maturities, called tranches. The principal payments from the underlying pool of pass- through securities are used to retire the bonds on a priority basis as specified in the prospectus. Related: Mortgage pass-through security
Combination matching
Also called horizon matching, a variation of multiperiod immunization and cash flow matching in which a portfolio is created that is always duration matched and also cash-matched in the first few years.
Combination strategy
A strategy in which a put and a call on the same underlying stock with the same strike price and expiration are either both bought or both sold. Related: Straddle
Commercial paper
Short-term unsecured promissory notes issued by a corporation. The maturity of commercial paper is typically less than 270 days; the most common maturity range is 30 to 50 days or less.
Commission
Also known as round-turn. The one-time fee normally charged by a broker to a customer when a futures or options position is liquidated either by offset or delivery. Related: Offset, Delivery
Commission house
A firm which buys and sells futures contracts for customer accounts. Related: Futures commission merchant, Omnibus account
Committee for Performance Presentation Standards (CPPS)
A committee of the Association for Investment Management and Research (AIMR) which sets professional standards for portfolio performance presentations.
Commitment
A trader is said to have a commitment when he assumes the obligation to accept or make delivery on a futures contract. Related: Open interest
Commodities Exchange Center (CEC)
The location of five New York futures exchanges: Commodity Exchange, Inc. (COMEX), the New York Mercantile Exchange (NYMEX), the New York Cotton Exchange, the Coffee, Sugar and Cocoa Exchange (CSC), and the New York Futures Exchange (NYFE). common size statement A statement in which all items are expressed as a percentage of a base figure, useful for purposes of analyzing trends and the changing relationship between financial statement items. For example, all items in each year's income statement could be presented as a percentage of net sales.
Common stock equivalent
A convertible security that is traded like an equity issue because the optioned common stock is trading high.
Common stock market
The market for trading equities, not including preferred stock.
Company-specific risk
Related: Unsystematic risk
Consensus forecast
The mean of all financial analysts' forecasts for a company.
Constant-growth model
Also called the Gordon-Shapiro model, an application of the dividend discount model which assumes ( 1) a fixed growth rate for future dividends and (2) a single discount rate.
Contango
A market condition in which futures prices are higher in the distant delivery months.
Contingent deferred sales charge (CDSC)
The formal name for the load of a back- end load fund.
Contingent immunization
An arrangement in which the money manager pursues an active bond portfolio strategy until an adverse investment experience drives the then- available potential return down to the safety-net level. When that point is reached, the money manager is obligated to pursue an immunization strategy to lock in the safety- net level return.
Contract
A term of reference describing a unit of trading for a financial or commodity future. Also, the actual bilateral agreement between the buyer and seller of a transaction as defined by an exchange.
Contract month
The month in which futures contracts may be satisfied by making or accepting a delivery. Related: Delivery month contrarians Also called value managers, those who assemble portfolios with relatively lower betas, lower price-book and P/E ratios and higher dividend yields, seeing value where others do not.
Convention statement
An annual statement filed by a life insurance company in each state where it does business in compliance with that state's regulations. The statement and supporting documents show, among other things, the assets, liabilities, and surplus of the reporting company.
Conventional mortgage
A loan based on the credit of the borrower and on the collateral for the mortgage.
Conventional pass-throughs
Also called private-label pass-throughs, any mortgage pass-through security not guaranteed by government agencies. Compare agency pass-throughs.
Conversion factors
Rules set by the Chicago Board of Trade for determining the invoice price of each acceptable deliverable Treasury issue against the Treasury bond futures contract.
Conversion parity price.
Related: Market conversion price
Conversion ratio
The number of shares of common stock that the security holder will receive from exercising the call option of a convertible security.
Conversion value
Also called parity value, the value of a convertible security if it is converted immediately.
Convertible bonds
Bonds that can be converted into common stock at the option of the holder.
Convertible Eurobond
A Eurobond that can be converted into another asset, often through exercise of attached warrants.
Convertible preferred stock
Preferred stock that can be converted into common stock at the option of the holder.
Convertible security
A security that can be converted into common stock at the option of the security holder, including convertible bonds and convertible preferred stock.
Convex
Bowed, as in the shape of a curve. Usually referring to the price/required yield relationship for option-free bonds.
Corporate bonds
Debt obligations issued by corporations.
Cost of carry
Related: Net financing cost
Counterparties
The parties to an interest rate swap.
Counterparty risk
The risk that the other party to an agreement will default. In an options contract, the risk to the option buyer that the option writer will not buy or sell the underlying as agreed.
Coupon
The periodic interest payment made to the bondholders during the life of the bond.
Coupon rate
The rate of interest that, when multiplied by the par value, indicates the dollar value of the coupon payment.
Cover
The purchase of a contract to offset a previously established short position.
Coverage ratios
Ratios used to test the adequacy of cash flows generated through earnings for purposes of meeting debt and lease obligations, including the interest coverage ratio and the fixed charge coverage ratio.
Covered call writing strategy
A strategy that involves writing a call option on securities that the investor owns in his or her portfolio. See covered or hedge option strategies.
Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the underlying stock, designed so that one position will help offset any unfavorable price movement in the other, including covered call writing and protective put buying. Related: Naked strategies
Credit analysis
The process of analyzing information on companies and bond issues in order to estimate the ability of the issuer to live up to its future contractual obligations. Related: Default risk
Credit risk
Related: Default risk
Credit spread
Related: Quality spread
Crediting rate
The interest rate offered on an investment type insurance policy.
Cross hedging
The practice of hedging with a futures contract that is different from the underlying being hedged.
Cumulative preferred stock
Preferred stock whose dividends accrue, should the issuer not make timely dividend payments. Related: Non-cumulative preferred stock
Cumulative probability distribution
A function that shows the probability that the random variable will attain a value less than or equal to each value that the random variable can take on.
Currency risk.
Related: Exchange rate risk
Current assets
Also called circulating assets, working assets, or working capital, assets expected to be realized in cash or sold or consumed during the normal operating cycle of the business.
Current-coupon issues.
Related: Benchmark issues
Current ratio
The ratio of current assets to current liabilities.
Custodial fees
Fees charged by an institution that holds securities in safekeeping for an investor.
Customized benchmarks
A benchmark that is designed to meet a client's requirements and long term objectives.


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