- 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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