Campbell R. Harvey's Hypertextual Finance Glossary

Copyright © 2002. All Worldwide Rights Reserved. Do not reproduce without explicit permission.

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Fifth letter of a Nasdaq stock symbol specifying that the issue is the second preferred bond of the company.
See: House Air Waybill
See: Helsinki Exchange
The two-character ISO 3166 country code for HONG KONG.
The ISO 4217 currency code for theHong Kong Dollar.
See: Hong Kong Futures Exchange
See: Highly leveraged transaction
The two-character ISO 3166 country code for HEARD ISLAND AND MCDONALD ISLANDS.
The two-character ISO 3166 country code for HONDURAS.
The ISO 4217 currency code for the Honduras Lempira.
The two-character ISO 3166 country code for CROATIA.
Croatian Kuna currency. (The ISO 4217 currency code)
The two-character ISO 3166 country code for HAITI.
The ISO 4217 currency code for the Haiti Gourde.
The two-character ISO 3166 country code for HUNGARY.
The ISO 4217 currency code for the Hungarian Forint.
The margin or difference between the actual market value of a security and the value assessed by the lending side of a transaction).
The point in the life of a mortgage-backed security guaranteed or issued by the Government National Mortgage Association, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation when half the principal has been repaid.
Stock, common or preferred, with a $50 par value.
Hammering the market
Heavy selling of stocks by speculators who think that the stock is overvalued and is about to drop.
The whole-dollar price of a bid or offer is referred to as the handle (e.g., if a security is quoted at 101.10 bid and 101.11 offered, 101 is the handle). Traders are assumed to know the handle. See: Full.
Hands-off investor
An investor who has a large stake in a company, but does not wish to play an active role in the management of the corporation.
Hands-on investor
An investor who has a large stake in a corporation and takes an active role in its management. Antithesis of hands-off investor.
Hang Seng index
The major index in Hong Kong.
Hard call protection
Usually refers to callable bonds. The period of time when a bond cannot be called, no matter what the interest rate is. That is, if the interest rate falls sharply, most callable bonds will be called (so the bond issuer can reissue at a lower interest rate). Hard call protection ensures that the holder of the bond can benefit when rates fall.
Hard capital rationing
A capital budget that under no circumstances can be violated.
Hard currency
A freely convertible currency that is not expected to depreciate in value in the foreseeable future.
Hard dollars
Actual separate payments made by a customer for services, including research, provided by a brokerage firm. Antithesis of soft dollars.
Harmless warrant
Warrant that allows the user to purchase a bond only by surrendering an other bond with similar terms.
The Harmonized Commodity Description and Coding System
Commonly known as Harmonized System. It isa a classification system devised by the Customs Cooperation Council to provide uniformity in tariff classification, trade statistics, and transport documentation among cooperating countries.
Hart-Scott-Rodino Act
Often used in risk arbitrage. Antitrust act administered by U.S. Department of Justice and the FTC that requires an investor to file a form with the government before he acquires an economic interest in the lesser amount of $15 million or 15% of the capitalization of a specific security. The government has thirty days to respond to the filer.
Harvey, Campbell R.
Author of this glossary. Finance professor at Duke University. Author of research on international finance, asset allocation, and emerging markets.
Head & shoulders
In technical analysis, a pattern that results where a stock price reaches a peak and declines; rises above its former peak and again declines; and rises a third time but not to the second peak, and then again declines. The first and third peaks are shoulders, while the second peak is the formation's head. Technical analysts generally consider a head and shoulders formation to be a very bearish indication.
An equities market now dominated by sellers, or oversupply, resulting in falling prices. See: Overbought, resistance level, tired.
A transaction that reduces the risk of an investment.
Hedge clause
A clause in a research report or any published document, that attempts to absolve the writer of responsibility for the accuracy of information provided.
Hedge fund
A fund that may employ a variety of techniques to enhance returns, such as both buying and shorting stocks according to a valuation model.
Hedge quality
Measured by the R-square in a regression of spot rate changes on futures price changes.
Hedge ratio (delta)
For options, ratio between the change in an option's theoretical value and the change in price of the underlying stock at a given point in time. For convertibles, percentage of a convertible bond representing the number of underlying common shares sold against the shares into which bonds are convertible. If a preferred is convertible into 2000 common shares, a 75% hedge ratio would be short (long) 1500 common for every 1000 preferred long (short). See: Delta.
Hedge wrapper
An options strategy in which an investor with a long position in an underlying stock buys an out-of-the-money put and sells an out-of-the-money call. The hedge wrapper defines a range where the stock will be sold at expiration of the option, which way the stock moves.
Hedged portfolio
A portfolio consisting of a long position in the stock and a long position in the put option on the stock, so as to be riskless and produce a return that equals the risk-free interest rate.
Hedged tender
An investor sells a portion of a stock holding short a tender offer in the event all shares tendered are not accepted. For example, investor Q has 5000 shares of XYZ. An acquiring company makes a tender offer of $100 a share when the shares are currently worth $80. Investor Q short-sells 2500 shares after the announcement and the price of the stock has approached $100. Company XYZ purchases only 2500 of the original shares at $100. Investor Q has sold all shares at $100 even as the price of the stock drops on a post-news dip.
Slang for a hedge fund.
A strategy designed to reduce investment risk using call options, put options, short-selling, or futures contracts. A hedge can help lock in profits. Its purpose is to reduce the volatility of a portfolio by reducing the risk of loss.
Hedging demands
Demands for securities to hedge particular sources of consumption risk, beyond the usual mean-variance diversification motivation.
Held at the opening
Used for listed equity securities. Not open for trading because specialists or regulators are not allowing trading to occur until imbalances dissipate or news is disseminated.
Held order
Order that must be executed without hesitation (Hit the bid or take the offer in line) or if the stock can be bought or sold at that price (held limit order) in sufficient quantity.
Hell-or-high-water contract
A contract that obligates a purchaser of a project's output to make cash payments to the project in all events, even if no product is offered for sale.
Helsinki Exchanges (HEX)
The Helsinki Exchanges (HEX Ltd., Helsinki Securities and Derivatives Exchange and Clearing House) was formed at the beginning of 1998 following the merger of the Helsinki Stock Exchange Ltd. and SOM Ltd., the Securities and Derivatives Exchange, and the Clearing House.
Hemline theory
A theory that stock prices move in the same direction as the hemlines of women's dresses. For example, short skirts (1920s and 1960s) are symbolic of bullish markets and long skirts (1930s and 1940s) are symbolic of bearish markets.
Herstatt risk
The risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to complete its end of the contract. This is also referred to as settlement risk.
H-H page
Quotron display page that shows new listed inquiries/orders received after the block call.
Hong Kong Interbank Offer Rate, the annualized offer rate banks pay to attain Hong Kong three-month deposits in denominated dollars.
Hidden load
A sales charge that is not explicitly disclosed or is buried in the fine print of a mutual fund prospectus or life insurance policy and therefore is not immediately apparent.
Hidden values
Valuable assets owned by a company, that are not accurately reflected in its stock price at a particular time.
High-coupon bond refunding
Replace a high-coupon bond with a new, lower-coupon bond.
High credit
The maximum amount of outstanding loans for a particular customer on a bank's record.
High current income mutual fund
A mutual fund whose primary goal is to produce a high level of income by making higher-risk investments in instruments such as junk bonds.
High flyer
High-priced and highly speculative stock that moves up and down sharply over a short period. Generally glamorous in nature due to the capital gains potential associated with them; also used to describe any high-priced stock. Antithesis of sleeper.
Credit quality of AAA or AA.
High-grade bond
A bond with Triple-A or Double-A rating in Standard & Poor's, or Moody's rating system.
High price
The highest (intraday) price of a stock over the past 52 weeks, adjusted for any stock splits.
High-premium convertible debenture
A bond with a long-term, high-premium, common stock conversion feature. It also offers a competitive interest rate. This type of investment vehicle is aimed at bond investors who want to be able to convert into stock to hedge against inflation.
High-tech stock
Stocks of companies operating in high-technology fields.
High withholding tax interest income
Interest income that is subject to a foreign gross withholding tax of 5% or more. Specified in US tax code.
High yield
In the context of hedge funds, a style of management that focuses on low rated fixed income securities.
High-yield bond
See: Junk bond
Japanese term for a takeover.
Highly confident letter
An investment banking firm's letter indicating that the firm is highly confident it will be able to arrange financing for a securities deal.
Highly leveraged transaction (HLT)
Bank loan to a highly leveraged firm.
Stocks that have hit an all-time high for the current 52-week time period.
Historical cost
Describes the accounting cost carried in the books for a current cost of the item.
Historical Cost Accounting Convention
An accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition.
Historical exchange rate
An accounting term that refers to the exchange rate in effect at the time an asset or liability is acquired.
Historical trading range
The range of price over which a security or a commodity has traded since listing on a exchange.
Historical volatility
Fluctuations estimated from a historical time series.
Historical yield
A measure of a mutual fund's yield over a specific period of time, e.g., 1 year, 2 year, 5 year, or year to date.
Hit the bid
A dealer who agrees to sell at the bid price quoted by another dealer is said to "hit" that bid. Antithesis of take the offer.
Hit the ribbon
Used in the context of general equities. See: Print.
To maintain ownership of a security over a long period of time. "Hold" is also a recommendation of an analyst who is not positive enough on a stock to recommend a buy, but not negative enough on the stock to recommend a sell.
The purchaser of an option.
Holder of record date
The date on which holders of record in a firm's stock ledger are designated as the recipients of either dividends or stock rights. Also called date of record.
Holding company
A corporation that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors.
Holding the market
The illegal practice of maintaining and/or placing a sufficient number of buy orders to create price support for a security or commodity in an amount to of stabilize a downward trend.
Holding period
Length of time a security is held.
Holding-period return
Rate of return on an investment over a given period.
Holding-Period Yield (HPY)
The annual rate of return actually realized on an investment in a bond.
Home asset bias
The tendency of investors to over invest in their own county's assets.
Home run
Large capital gain in a stock in a short period of time.
Homemade dividend
Sale of some shares of stock to get cash in an amount similar to that of a cash dividend.
Homemade leverage
Idea that as long as individuals borrow (or lend) on the same terms as the firm, they can duplicate the effects of corporate leverage on their own. Thus, if levered firms are priced too high, rational investors will simply borrow on personal accounts to buy shares in unlevered firms.
Homeowner's equity account
A credit line offered by mortgage lenders allowing a homeowner a second mortgage that uses the equity present in the customer's account as collateral.
Homeowner's insurance policy
An insurance policy protecting a homeowner against damage or loss to property.
The degree to which items are similar.
Exhibiting a high degree of homogeneity.
Homogeneous expectations assumption
An assumption of Markowitz portfolio construction that investors have the same expectations with respect to the inputs that are used to derive efficient portfolios: asset returns, variances, and covariances.
Hong Kong Futures Exchange (HKFE)
Established in 1976, the Hong Kong Futures Exchange (H.K.F.E.) operates futures and options markets in index, stock, interest rate, and foreign exchange products.
Horizon analysis
An analysis of returns using total return to assess performance over some investment horizon.
Horizon matching strategy
An income immunization strategy that cash-matches over the next few years and duration-matches the rest.
Horizon return
Total return over a given horizon.
Horizontal acquisition
Merger between two companies producing similar goods or services.
Horizontal analysis
The process of dividing each expense item of a given year by the same expense item in the base year. It allows assessment of changes in the relative importance of expense items over time and the behavior of expense items as sales change.
Horizontal merger
A merger involving two or more firms in the same industry that are both at the same stage in the production cycle; that is, two or more competitors.
Horizontal price movement
Stock price movement within a narrow price range over an extended period of time which creates the appearance of a relatively straight line on a graph of the stock's price.
Horizontal spread
The simultaneous purchase and sale of two options that differ only in their expiration dates.
Hospital revenue bond
A bond issued to finance construction of a hospital by a municipal or state agency.
Host security
The security to which a warrant is attached.
Hostile takeover
A takeover of a company (usually made by an open tender offer to shareholders) against the wishes of the current management and the board of directors by an acquiring company or raider.
Used in the context of general equities. Active, usually with positive price implications.
Hot money
Money that moves across country borders in response to interest rate differences and that moves away when the interest rate differential disappears.
Firms that conduct business as broker-dealers in securities or in the investment banking field are characterized as houses.
House account
A type of account at a brokerage firm that is given a high level of priority and is handled by the main office or an executive, rather than a traditional salesperson.
House Air Waybill (AWB)
An air waybill issued by an air freight consolidator.
House call
Notification by a brokerage house that a customer's margin account is below the minimum maintenance level. The client must provide more cash or equity, or the account will be liquidated.
House of issue
An investment banking firm whose business it is to underwrite stock or bond issues and offer the securities to the public.
House maintenance requirement
The internal rules of a brokerage house that govern the minimum amount of equity that must be present in a customer's margin account.
House poor
People who are short on cash because most of their money is tied up in their homes are "house poor."
House rules
Internal rules of broker-dealer firm that govern the handling of its customers' accounts.
Housing bond
Bonds issued by a local housing authority to finance housing projects.
"How are you making XXX?"
"What is your market in a particular stock?" See: Quotation.
An arrogance due to excessive pride and an insolence toward others. A classic character flaw of a trader or investor.
Hulbert rating
A rating by Hulbert Financial Digest (of Alexandria, Virginia) of how well the recommendations of various investment advisory newsletters have performed.
Human capital
The unique capabilities and expertise of individuals.
Humphrey-Hawkins Act
Informal name for the Full Employment and Balanced Growth Act of 1978, from the names of the act's original sponsors.
Hung up
Used to describe the position of an investor whose stocks or bonds have dropped in value below their original purchase price.
Hunkering down
A term used to describe a trader selling off a big position in a stock.
Hurdle rate
The required return in capital budgeting. For example, if a project has an expected rate of return higher than the hurdle rate, the project may be accepted.
Hurst Exponent(H)
A measure of the bias in fractional Brownian motion. H=0.50 for Brownian motion. 0.50<H<1.00 for persistent, or trend-reinforcing series. 0<H<0.50 for an anti-persistent, or mean-reverting system. The inverse of the Hurst exponent is equal to alpha, the characteristic exponent for Stable Paretian distributions. The fractal dimension of a time series, D, is equivalent to 2-H.
A package of two or more different kinds of risk management instruments that are usually interactive.
Hybrid annuity
A type of insurance company investment that combines the benefits of both a fixed annuity and a variable annuity.
Hybrid security
A convertible security whose optioned common stock is trading in a middle range, causing the convertible security to trade with the characteristics of both a fixed income security and a common stock instrument.
See: Inflation
In banking, refers to the commitment of property to secure a loan.

In securities, refers to the commitment of securities to serve as collateral for margin loans at the broker-dealer firm.

Used to characterize a lagging effect. Firms may fail to enter markets that appear attractive, or firms that are once invested in a market may persist in operating at a loss. The effect is characteristic of investments with high entry and exit costs along with high uncertainty.

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Copyright © 2002, Campbell R. Harvey. All Worldwide Rights Reserved. Do not reproduce without explicit permission.

[Version December 13, 2002.]

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