Earnings per share
Earnings calculated by dividing the earnings available to common stock holders by the weighted average number of common shares outstanding over the year for which the calculation takes place.
Earnings surprises
Positive or negative differences from the consensus forecast.
Economic surplus
For any entity, the difference between the market value of all its assets and the market value of its liabilities.
Effective convexity
The convexity of a bond calculated with cash flows that change with yields.
Effective date
In an interest rate swap, the date the swap begins accruing interest.
Effective duration
The duration calculated using the approximate duration formula for a bond with an embedded option, reflecting the expected change in the cash flow caused by the option.
Efficient portfolio
A portfolio that provides the greatest expected return for a given level of risk, or equivalently, the lowest risk for a given expected return.
Embedded option
An option that is part of the structure of a bond, as opposed to a bare option, which trades separately from any underlying security.
Emerging markets
The financial markets of developing economies.
Endowment funds
Investment funds established for the support of institutions such as colleges, private schools, museums, hospitals, and foundations. The investment income may be used for the operation of the institution and for capital expenditures.
Enhanced indexing
Also called indexing plus, an indexing strategy whose objective is to exceed the total return performance of the index.
Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML represents the return offered to compensate for a perceived level of risk, each point on the line is a balanced market condition, or equilibrium. The slope of the line determines the additional return needed to compensate for a unit change in risk.
The residual dollar value of a futures trading account, assuming its liquidation at the going market price.
Equity cap
An agreement in which one party, for an upfront premium, agrees to compensate the other at specific time periods if a designated stock market benchmark is greater than a predetermined level.
Equity claim
Also called a residual claim, a claim to a share of earnings after debt obligation, have been satisfied.
Equity collar
The simultaneous purchase of an equity floor and sale of an equity cap.
Equity floor
An agreement in which one party agrees to pay the other at specific time periods if a specific stock market benchmark is less than a predetermined level.
Equity-linked policies
Related: Variable life
Equity market
Related: Stock market
Equity options
Options in which the underlying is either a stock or a stock index.
Equity swap
A swap in which the cash flows that are exchanged are based on the total return on some stock market index and an interest rate (either a fixed rate or a floating rate). Related: Interest rate swap.
Equivalent taxable yield
The yield that must be offered on a taxable bond issue to give the same after-tax yield as a tax-exempt issue.
Euro straight
A fixed-rate coupon Eurobond
A bond that is (1) underwritten by an international syndicate, (2) offered at issuance simultaneously to investors in a number of countries, and (3) issued outside the jurisdiction of any single country.
Eurodollar bonds
Eurobonds denominated in U.S. dollars.
Euroequity issues
Securities sold in the Euromarket. That is, securities initially sold to investors simultaneously in several national markets by an international syndicate. Euromarket. Related: External market
European option
Option that may be exercised only at the expiration date. Related: American option
Euroyen bonds
Eurobonds denominated in Japanese yen.
Evaluation period
The time interval over which a money manager's performance is evaluated.
Evening up
Buying or selling to offset an existing market position. Related: Buy in, Liquidation, Offset
Event risk
The risk that the ability of an issuer to make interest and principal payments will change because of (1) a natural or industrial accident or some regulatory change or (2) a takeover or corporate restructuring.
Exante return
The expected return of a portfolio based on the expected returns of its component assets and their weights.
Ex post return
Related: Holding period return
Except for opinion
An auditor's opinion reflecting the fact that the auditor was unable to audit certain areas of the company's operations because of restrictions imposed by management or other conditions beyond the auditor's control.
Excess reserves
Any excess of actual reserves above required reserves.
Excess returns
Also called abnormal returns, returns In excess of those required by some asset pricing model.
Exchange rate risk
Also called currency risk, the risk of an investment's value changing because of currency exchange rates.
Exchangeable security
A security that grants the securityholder the right to exchange the security for the common stock of a firm other than the issuer of the security.
Execution costs
The difference between the execution price of a security and the price that would have existed in the absence of a trade, which can be further divided into market impact costs and market timing costs.
The conversion of the option by the holder into the appropriate long or short underlying futures contract.
Exercise price
The price at which the underlying future or options contract may be bought or sold.
Expectations theories
Theories including the pure expectations theory, the liquidity theory of the term structure, and the preferred habitat theory, which share a hypothesis about the behavior of short-term forward rates and also assume that the forward rates in current long-term contracts are closely related to the market's expectations about future short-term rates. These three theories differ, however, on whether other factors also affect forward rates, and how.
Expected return
The return expected on a risky asset based on a probability distribution for the possible rates of return.
Expected value
The weighted average of a probability distribution.
Charged to an expense account, fully reducing reported profit of that year, as is appropriate for expenditures for items with useful lives under one year.
Expiration date
The last day upon which an option can be exercised.
Expiration date The date when an option contract ends.
External efficiency
Related: Pricing efficiency.
External market
Also referred to as the international market, the offshore market, or, more popularly, the Euromarket, the mechanism for trading securities that (1) at issuance are offered simultaneously to investors in a number of countries and (2) are issued outside the jurisdiction of any single country. Related: Internal market
Extrapolative statistical models
Models that apply a formula to historical data and project results for a future period. Such models include the simple linear trend model, the simple exponential model, and the simple autoregressive model.

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