Campbell R. Harvey's Hypertextual Finance Glossary

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Fifth letter of a Nasdaq stock symbol specifying that the issue is a class of stock such as third preferred class of warrants, foreign preferred, sixth class of preferred stock, or preferred when issued stock.
The two-character ISO 3166 country code for LAO PEOPLE'S DEMOCRATIC REPUBLIC.
The ISO 4217 currency code for Laos New Kip.
The two-character ISO 3166 country code for LEBANON.
See: Leveraged buyout
The ISO 4217 currency code for Lebanese Pound.
The two-character ISO 3166 country code for SAINT LUCIA.
See: Less Than Container Load
See: Less developed countries
See: Long-Term Anticipation Securities
The two-character ISO 3166 country code for LIECHTENSTEIN.
See: London Interbank Offered Rate
See: London International Financial Futures and Options Exchange
See: Last in, first out
The two-character ISO 3166 country code for SRI LANKA.
The ISO 4217 currency code for Sri Lankan Rupee.
See: Letter of credit
The two-character ISO 3166 country code for LIBERIA.
The ISO 4217 currency code for the Liberian Dollar.
The two-character ISO 3166 country code for LESOTHO.
The ISO 4217 currency code for the Lesotho Loti.
The two-character ISO 3166 country code for LITHUANIA.
The ISO 4217 currency code for the Lithuanian Litas.
See: Loan-to-value ratio
The two-character ISO 3166 country code for LUXEMBOURG.
The ISO 4217 currency code for the Luxembourg Franc.
The two-character ISO 3166 country code for LATVIA.
The ISO 4217 currency code for the Latvian Lats.
The two-character ISO 3166 country code for LIBYAN ARAB JAMAHIRIYA.
The ISO 4217 currency code for the Libyan Dinar.
See: Liquid yield option note
Ladder strategy
A bond portfolio construction strategy that invests approximately equal amounts in every maturity within a given range.
Lady Macbeth Strategy
Strategy in which a third party poses as a white knight in a takeover bid, and then joins forces with an unfriendly bidder.
Laffer curve
A curve conjecturing that economic output will increase if marginal tax rates are cut. Named after economist Arthur Laffer.
Payment of a financial obligation later than is expected or required, as in lead and lag. Also, the number of periods that an independent variable in a regression model is "held back" in order to predict the dependent variable.
Lag response of prepayments
A delay of typically about three months between the time the weighted-average coupon of an MBS pool crosses the threshold for refinancing and observation of an acceleration in prepayment speed is observed.
Strategy used by a firm to stall payments, normally in response to exchange rate projections.
Lagging indicators
Economic indicators that follow rather than precede the country's overall pace of economic activity. See also: Leading indicators and coincident indicators.
Doctrine that a government should not interfere with business and economic affairs.
The ratio of a change in the option price to a small change in the option volatility. It is the partial derivative of the option price with respect to the option volatility.
Land contract
A method of real estate financing; a mortgage-holding seller finances a buyer by taking a down payment and subsequent payments in installments, but holds the title until the mortgage is fully repaid.
A property owner who rents property to a tenant.
Lapsed option
An option that no longer has any value because it has reached its expiration date without being exercised.
A stock with a high level of capitalization, usually at least $5 billion market value.
Lagging indicators
Economic indicators that follow rather than precede the country's overall pace of economic activity. See also: Leading indicators and coincident indicators.
Last in, first out (LIFO)
An accounting method that fixes the cost of goods sold to the most recent purchases. Hence, if prices are generally rising, LIFO will lead to lower accounting profitability.
Last sale
The most recent trade performed in a security.
Last split
After a stock split, the number of shares distributed for each share held and the date of the distribution.
Last trading day
The final day under an exchange's rules during which trading may take place in a particular futures or options contract. Contracts outstanding at the end of the last trading day must be settled by delivery of underlying physical commodities or financial instruments, or by agreement for monetary settlement, depending futures contract specifications.
Late charge
A fee a credit grantor charges a borrower for a late payment.
Late tape
A delay in the display of price changes on the tape of an exchange because of heavy trading. In severe instances the first digit of each price is intentionally deleted.
To move illegally acquired cash through financial systems so that it appears to be legally acquired.
Law of large numbers
The mean of a random sample approaches the mean (expected value) of the population as sample size increases.
Law of one price
An economic rule stating that a given security must have the same price no matter how the security is created. If the payoff of a security can be synthetically created by a package of other securities, the implication is that the price of the package and the price of the security whose payoff it replicates must be equal. If it is unequal, an arbitrage opportunity would present itself.
Lay off
In the context of general equities, this eliminates all or part of a position by finding customers or other dealers to take the position.
Used in the context of general equities. Easily executed trade or order. See: Lead pipe.
Payment of a financial obligation earlier than is expected or required.
Lead manager
The commercial or investment bank with the primary responsibility for organizing syndicated bank credit or bond issued. The lead manager recruits additional lending or underwriting banks, negotiates terms of the issue with the issuer, and assesses market conditions.
Lead pipe
Used in the context of general equities. Virtually certain that trade will take place; lead pipe cinch. See: Layup.
Lead regulator
A leading self-regulatory organization that over sees compliance with a particular section of the law, such as the NYSE, ASE, or NASDAQ.
Lead underwriter
The head of a syndicate of financial firms that are sponsoring an initial public offering of securities or a secondary offering of securities. Could also apply to bond issues.
A stock or group of stocks that is the first to move in a market upsurge or downturn.
Strategy used by a firm to accelerate payments, normally in response to exchange rate expectations.
Leading economic indicators
Economic series that tend to rise or fall in advance of the rest of the economy.
Leading indicator
A change in a measurable economic factor that is evident before the economy starts to follow a specific trend.
Leading and lagging
Refers to timing of cash flows within a corporation.
Leading the market
In the context of general equities, this is a stock or group of stocks moving with the market as a whole, but moving in advance of the general market.
Release of information selectively or not before official public announcement.
A long-term rental agreement, and a form of secured long-term debt.
Lease acquisition cost
The legal fees and other expenses incurred when acquiring a lease.
An asset providing the right to use property under a lease agreement.
Leasehold improvement
An improvement made to leased property.
Lease-purchase agreement
An agreement that allows for portions of lease payments to be used to purchase the leased property.
Lease rate
The payment per period stated in a lease contract.
A transaction that involves the sale of some property, and an agreement by the seller to lease the property back from the buyer after the sale.
Used in the context of general equities. Remains to buy or sell of a previously entered order after a report of partial execution has been given. If the floor broker to buy 20M IBM at $115, and he then buys 6M at this price, his report would be, "You bought 6M IBM at $115; leaves 14."
Ledger cash
A firm's cash balance as reported in its financial statements. Also called book cash.
A prolonged trend in stock market prices, such as a multiple-period bull market; or, an option that is one side of a spread transaction. See: Lifting a leg.
Leg up
Used in the context of general equities. (1)Have a portion of the offsetting side of a trade in your pocket (spoken for) so your capital risk in the transaction is reduced. (Purchase of 10,000 of a 50,000 buy order leaves the trader a "leg up".) (2) Complete one side of a two-sided transaction, as in a swap or contingency order.
A computerized database maintained by the NYSE to keep track of enforcement actions, audits, and complaints against member firms. This term is not an acronym but is referred to in capitals.
Legal capital
Value at which a company's shares are recorded in its books.
Legal bankruptcy
A legal proceeding for liquidating or reorganizing a business.
Legal defeasance
The deposit of cash and permitted securities, as specified in the bond indenture, into an irrevocable trust sufficient to enable the issuer to fully discharge its obligations under the bond indenture.
Legal entity
A person or organization that can legally enter into a contract, and may therefore be sued for failure to comply with the terms of the contract.
Legal investments
Investments that a regulated entity is permitted to make under the rules and regulations that govern its conduct.
Legal list
A list of high-quality debt and equity securities chosen by a state agency that are acceptable holdings for fiduciary institutions.
Legal monopoly
A government-regulated firm that is legally entitled to be the only company offering a particular service in a particular area.
Legal opinion
A statement, usually written by a specialized law firm, required for a new municipal bond issue stating that the issue is legally acceptable.
Legal transfer
A stock transaction that requires special documentation in addition to standard stock or bond power to be legally valid.
Legislative risk
The risk that new or changed legislation will have a large positive or negative effect on an investment.
Used in the context of general equities. Real interest in trading as compared to a profile stance. See: Natural.
Lehman Brothers Adjustable-Rate Mortgage Index
A benchmark index that includes all agency-guaranteed securities with coupons that periodically adjust based on a spread over a published index.
Lehman Brothers Aggregate Bond Index
A benchmark index made up of the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index, including securities that are of investment-grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $100 million.
Lehman Brothers California Municipal Bond Index
A benchmark index that includes investment-grade, tax-exempt, and fixed-rate bonds issued in California. All securities have long-term maturities (greater than two years) and are selected from issues larger than $50 million.
Lehman Brothers Corporate Bond Index
A benchmark index that includes all publicly issued, fixed-rate, nonconvertible, dollar-denominated, SEC-registered, investment-grade corporate debt.
Lehman Brothers Government Bond Index
A benchmark index made up of the Treasury Bond Index and the Agency Bond Index as well as the 1-3 Year Government Index and the 20+ Year Treasury Index.
Lehman Brothers Government/Corporate Bond Index
A benchmark index made up of the Lehman Brothers® Government and Corporate Bond indexes, including U.S. government Treasury and agency securities as well as corporate and Yankee bonds.
Lehman Brothers Mortgage-Backed Securities Index
A benchmark index that includes 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and Federal National Mortgage Association (FNMA).
Lehman Brothers Municipal Bond Index
A benchmark index that includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than two years) selected from issues larger than $50 million.
Lehman Brothers New York Municipal Bond Index
A benchmark index that includes investment-grade, tax-exempt, and fixed-rate bonds issued in the state of New York. All securities have long-term maturities (greater than two years) and are selected from issues larger than $50 million.
An investment with poor results.
Lemons problem
Named after 2001 Nobel Laureate George Akerlof's 1970 paper "The Market for Lemons". His original example had to do with used cars. Why does the seller want to get rid of the car? It might be a lemon. The buyer and seller have asymmetric information. Hence, the buyer will demand a deep discount on the car because of the possibility it is a lemon.
To provide money temporarily on the condition that it or its equivalent will be returned, often with an interest fee.
Lendable funds
The pool of funds available to borrows; typically categorized by currency and maturity.
Businesses that provide loans to others.
Lender of last resort
Traditionally the Federal Reserve Bank in the US, which assists banks that face large withdrawals of funds and in so doing stabilizes the banking system.
Lender liability lawsuits
Legal action of debtor against creditors that alleges unfair enforcement of loan covenants or violation of implied terms of a loan agreement.
Lending agreement
A contract regarding funds transferred between a lender and a borrower.
Lending at a premium
A loan from one broker to another of securities to cover a customer's short position, with a borrowing fee included. A fee is unusual since securities are normally lent freely between brokers.
Lending at a rate
Interest paid to a customer on the credit balance received from a short sale.
Lending securities
Securities borrowed from a broker's inventory, from another customer's margin account, or from another broker, when a customer is required to deliver on a short sale.
The condition of a probability density curve to have fatter tails and a higher peak at the mean than the normal distribution.
Less-developed countries (LDCs)
Also known as emerging markets. Countries who's per capita GDP is below a World Bank-determined level.
Less Than Container Load
Shipments of less than container load size (<$50,000).
An entity that leases an asset from another entity.
An entity that leases an asset to another entity.
Letter of Administration
A certificate issued by the Court evidencing the appointment of the Administrator of an Estate.
Letter of comment
A communication to the firm from the SEC that suggests changes to its registration statement.
Letter of credit (LOC)
A form of guarantee of payment issued by a bank on behalf of a borrower that assures the payment of interest and repayment of principal on bond issues.
Letter of Guarantee
A letter from a bank to a brokerage firm which states that a customer (who has written a call option) does indeed own the underlying stock and the bank will guarantee delivery if the call is assigned. Thus the call can be considered covered. Not all brokerage firms accept letters of guarantee. Also: letter issued to Option Clearing Corporation by member firms covering a guarantee of any trades made by one of its customers, (a trader or broker on the exchange floor).
Letter of intent
An assurance by a mutual fund shareholder that a certain amount of money will be invested monthly, in exchange for lower sales charges. In mergers, a preliminary merger agreement between companies after significant negotiations.
Letter stock
Privately placed common stock, so-called because the SEC requires a letter from the purchaser stating that the stock is not intended for resale.
Letter of Testamentary
A certificate issued by the court evidencing the appointment of an executor of estate.
Letter of Transmittal
A document used by security holder to accompany certificates surrendered in an exchange or other corporate action.
Used in the context of general equities. Price measure of an indication.
Level-coupon bond
Bond with a stream of coupon payments that remain the same throughout the life of the bond.
Level debt service
A municipal charter provision that debt payments must be relatively equal from year to year so that required revenue projections are easier.
Level load
A mutual fund that charges a permanent sales charge, usually at some fixed percentage. See: Front-end loads and back-end loads.
Level pay
Scheduling principal and interest payments (P&I) due under a mortgage so that total monthly payment of P&I is the same. Different from the typical mortgage for which the principal payment component of the monthly payment becomes gradually greater while the monthly interest component shrinks.
Level term insurance
A life insurance policy with a fixed face value and increasing premiums.
The use of debt financing, or property of rising or falling at a proportionally greater amount than comparable investments. For example, an option is said to have high leverage compared to the underlying stock because a given price change in the stock may result in a greater increase or decrease in the value of the option.
Leverage clientele
A group of shareholders who, because of their personal leverage, seek to invest in corporations that maintain a compatible degree of corporate leverage.
Leverage ratios
Measures of the relative value of stockholders, capitalization, and creditors obligations, and of the firm's ability to pay financing charges. Value of firm's debt to the total value of the firm (debt plus stockholder capitalization).
Leverage rebalancing
Making transactions to adjust (rebalance) a firm's leverage ratio to a target ratio.
Leveraged beta
The beta of a leveraged required return; that is, the beta as adjusted for the degree of leverage in the firm's capital structure.
Leveraged buyout (LBO)
A transaction used to take a public corporation private that is financed through debt such as bank loans and bonds. Because of the large amount of debt relative to equity in the new corporation, the bonds are typically rated below investment-grade, properly referred to as high-yield bonds or junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in such investments.
Leveraged company
A company that has debt in its capital structure.
Leveraged equity
Stock in a firm that relies on financial leverage. Holders of leveraged equity experience the benefits and costs of using debt.
Leveraged investment company
An investment company or mutual fund entitled to borrow capital for its operations. Also, an investment company that issues both income shares and capital shares.
Leveraged lease
A lease arrangement under which the lessor borrows a large proportion of the funds needed to purchase the asset. The lender has a lien on the assets and a pledge of the lease payments to secure the borrowing.
Leveraged portfolio
A portfolio that includes risky assets purchased with funds borrowed.
Leveraged recapitalization
Often used in risk arbitrage. A public company takes on significant additional debt with the purpose of either paying an extraordinary dividend or repurchasing shares, leaving the public shareholders with a continuing interest in a more financially leveraged company. Popular form of shark repellent See: Stub.
Leveraged required return
The required return on an investment when the investment is financed partially by debt.
Leveraged stock
Stocks financed with credit, such as that purchased on a margin account.
Levered portfolio
Investment at least partially financed by borrowing.
A financial obligation, or the cash outlay that must be made at a specific time to satisfy the contractual terms of such an obligation.
Liability funding strategies
Investment strategies that select assets so that cash flows will equal or exceed the client's obligations.
Liability insurance
Insurance guarding against damage or loss that the policyholder, may cause another person in the form of bodily injury or property damage.
Liability swap
An interest rate swap used to alter the cash flow characteristics of an institution's liabilities so as to provide a better match with its assets.
License agreement
A contract by which a domestic company (the licensor) allows a foreign company (the licensee) to market its products in a foreign country in return for royalties, fees, or other forms of compensation.
Arrangement in which a local firm in the host country produces goods in accordance with another firm's (the licensing firm's) specifications; as the goods are sold, the local firm can retain part of the earnings.
A security interest in one or more assets that lenders hold in exchange for secured debt financing.
Life annuity
An annuity that pays a fixed amount for the lifetime of the annuitant.
Life cycle
The lifetime of a product or business, from its creation to its demise or transformation.
Life expectancy
The length of time that an average person is expected to live, which is used by insurance companies use to make projections of benefit payouts.
Life insurance
An insurance policy that pays a monetary benefit to the insured person's survivors after death.
Life insurance in force
The dollar amount of life insurance that a company has issued, measured as the sum of policy face values and dividends paid.
Life insurance policy
The contract that sets out the terms of life insurance coverage.
Lifetime reverse mortgage
A type of mortgage in which a homeowner borrows against the value a home, while retaining title, and making no payments while residing in the home. When the owner ceases living in the house, the property is sold, and the loan repaid.
An increase in securities prices, as shown by some economic indicator.
Refers to over-the-counter trading. Having an offer taken in a stock, followed by the market maker raising the offer price.
Lifting a leg
Closing out one side of a long-short arbitrage before the other is closed.
Lighten up
Selling some part of a stock or bond position in a portfolio to realize capital gains or to losses or increase cash assets.
Lima Stock Exchange
Peru's major securities market.
See Trading Limit.
Limit Cycles
An attractor for non-linear dynamic systems which has periodic cycles or orbits in phase space. An example is an undamped pendulum which will have a closed circle orbit equal to the amplitude of the pendulum's swing. See: Attractor, Phase Space.
Limit on close order
An order to buy or sell stock at the closing price only if the price is at a predetermined level or better.
Limit order
An order to buy a stock at or below a specified price, or to sell a stock at or above a specified price. For instance, you could tell a broker "buy me 100 shares of XYZ Corp at $8 or less" or "sell 100 shares of XYZ at $10 or better" The customer specifies a price, and the order can be executed only if the market reaches or betters that price. A conditional trading order designed to avoid the danger of adverse unexpected price changes.
Limit order book
A record of unexecuted limit orders maintained by the specialist. These orders are treated equally with other orders in terms of priority of execution.
Limit order information system
The electronic system supplying information about securities traded on participating exchanges so that the best securities prices can be found.
Limit price
See: Maximum price fluctuation
Limit up, limit down
The maximum price change allowed for a commodity futures contract per trading day.
Limitation on asset dispositions
A bond covenant that restricts in some way a firm's ability to sell major assets.
Limitation on conversion
Applies mainly to convertible securities. Possible delay in convertibility. More frequently, the right to convert may be terminable prior to a redemption date, preventing the holder from receiving a final coupon or dividend. See: Accrued interest.
Limitation on liens
A bond covenant that restricts in some way a firm's ability to grant liens on its assets.
Limitation on merger, consolidation, or sale
A bond covenant that restricts in some way a firm's ability to merge or consolidate with another firm.
Limitation on sale-and-leaseback
A bond covenant that restricts in some way a firm's ability to enter into sale-and-leaseback transactions, financing techniques that could affect creditor thinness..
Limitation on subsidiary borrowing
A bond covenant that restricts in some way a firm's ability to borrow at the level of firm subsidiary.
Limited company
A form of business commonly used in the U.K. comparable to incorporation in the U.S.
Limited discretion
Permission by a client that allows a broker to make certain stock and option trades without first consulting the client about the trade.
Limited flexibility exchange rate system
The International Monetary Fund's name for an exchange rate system with a managed float.
Limited liability
Limitation of loss to what has already been invested.
Limited-liability instrument
A security, such as a call option, in which the owner can lose only the initial investment.
Limited partner
A partner who has limited legal liability for the obligations of the partnership.
Limited partnership
A partnership that includes one or more partners who have limited liability.
Limited payment policy
Life insurance providing full life protection but requiring premiums for only part of the customer's lifetime.
Limited risk
The risk inherent in options contracts, which is much lower than that of a futures contract, which has unlimited risk. The maximum loss in buying a call option, for example, is the premium paid for the option.
Limited price order
Used in the context of general equities. See: Limit order.
Limited-tax general obligation bond
A general obligation bond of a government backed by specified or constrained revenue sources.
Limited warranty
A warranty with certain conditions and limitations on the parts covered, type of damage covered, and/or time period for which the agreement is good.
Line of credit
An informal loan arrangement between a bank and a customer allowing the customer to borrow up to a prespecified amount.
Linear programming
Technique for finding the maximum value of some equation, subject to stated linear constraints.
Linear regression
A statistical technique for fitting a straight line to a set of data points.
Linking method
Method for calculating rates of return that multiplies one plus the interim rate of return.
Lintner's observations
John Lintner's work (1956) suggests that dividend policy is related both a target level, and to the speed of adjustment of change in dividends.
Lipper Mutual Fund Industry Average
The average level of performance for all mutual funds, as reported by Lipper Analytical Services.
Liquid asset
Asset that is easily and cheaply turned into cash-notably, cash itself and short-term securities.
Liquid market
A market allowing the buying or selling of large quantities of an asset at any time and at low transactions costs.
Liquid yield option note (LYON)
Zero-coupon, callable, putable, convertible bond developed by Merrill Lynch & Co.
Liquidating dividend
Payment by a firm to its owners from capital rather than from earnings.
Occurs when a firm's business is terminated. Assets are sold, proceeds are used to pay creditors, and any leftovers are distributed to shareholders. Any transaction that offsets or closes out a long or short position. Related: Buy in, evening up, offset liquidity.
Liquidation by assignment
Sale or realization of a debtor firm's assets voluntarily agreed to by its creditors who estimate that the firm's liquidation value exceeds its going-concern value.
Liquidation rights
The rights of a firm's securityholders in the event the firm liquidates.
Liquidation value
Net amount that could be realized by selling the assets of a firm after paying the debt.
Person appointed by an unsecured creditor in the United Kingdom to oversee the sale of an insolvent firm's assets and the repayment of its debts.
A high level of trading activity, allowing buying and selling with minimum price disturbance. Also, a market characterized by the ability to buy and sell with relative ease. Antithesis of illiquidity.
Liquidity diversification
Investing in a variety of maturities to reduce the price risk to which holding long bonds exposes the investor.
Liquidity Fund
A California company that buys real estate limited partnership interests at 25% to 35% lower than the current value of the real estate assets.
Liquidity preference hypothesis
The argument that greater liquidity is valuable, all else equal. Also, the theory that the forward rate exceeds expected future interest rates.
Liquidity premium
Forward rate minus expected future short-term interest rate.
Liquidity ratios
Ratios that measure a firm's ability to meet its short-term financial obligations on time, such as the ratio of current assets to current liabilities.
Liquidity risk
The risk that arises from the difficulty of selling an asset in a timely manner. It can be thought of as the difference between the "true value" of the asset and the likely price, less commissions.
Liquidity theory of the term structure
A biased expectations theory that asserts that the implied forward rates will not be a pure estimate of the market's expectations of future interest rates because they embody a liquidity premium.
Lisbon Stock Exchange (LSE)
Stock exchange trading stocks, bonds, and unit trusts. The BVL general index is the exchange's official index.
Listed firm
A company whose stock trades on a stock exchange, and conforms to listing requirements.
Listed option
An option that has been accepted for trading on an exchange.
Listed security
Stock or bond that has been accepted for trading by one of the organized and registered securities exchanges in the United States. Generally, the advantages of being listed are that exchanges provide: (1) an orderly marketplace; (2) liquidity; (3) fair price determination; (4) accurate and continuous reporting on sales and quotations; (5) information on listed companies; and (6) strict regulation for the protection of securityholders. Antithesis of OTC Security.
Listed stocks
Stocks that are traded on an exchange.
In the context of real estate, written agreement between a property owner and a real estate broker that gives the broker permission to find a buyer or tenant for some property. See: Listing broker.
Listing broker In the context of equity, when a stock is traded in exchange it is said to be listed.
A licensed real estate broker who completes a listing of a property for sale.
Listing requirements
Requirements, including minimum shares outstanding, market value, and income, that are laid down by an exchange for any stock to be listed for trading.
Living benefits
Life insurance benefits from which the insured can draw cash while still living, usually in the case of some high-cost illness.
Living trust
A trust that an individual establishes during the individual's lifetime, enabling the person to control the assets contributed to the trust. Also known as an inter vivos trust.
Living will
A document specifying the kind of medical care a person wants-or does not want-in the event of terminal illness or incapacity.
Lloyds of London
A marketplace in London for underwriting syndicates.
The sales fee charged to an investor when shares are purchased in a load fund or annuity. See: Bank-end load; front-end load; level load.
Load fund
A mutual fund that sells shares with a sales charge-typically 4% to 8% of the net amount indicated. Some no-load funds also levy distribution fees permitted by Article 12b-1 of the Investment Company Act; these are typically 0. 25%. A true no-load fund has neither a sales charge nor
Arrangement whereby the customer pays for the last delivery when the next one is received.
Load spread option
A method of allocating the annual sales charge on load funds, often through percentage deductions from a customer's periodic fixed payments.
Temporary borrowing of a sum of money. If you borrow $1 million you have taken out a loan for $1 million.
Loan amortization schedule
The timetable for repaying the interest and principal on a loan.
Loan commitment
Assurance by a lender to make money available to a borrower on specific terms in return for a fee.
Loan crowd
Historical term. In the 1920's and 1930's, it refers to the group of member firms that lend or borrow securities needed to cover the positions of customers who have sold short securities. The crowd could be found around the loan post.
Loan Preference Principle
The theory that a covered loan is less expensive when its cost is calculated in one currency, it will also be less expensive in all other currencies.
Loan syndication
Group of banks sharing a loan. See: Syndicate.
Loan value
The maximum percentage of the value of securities that a broker can lend to a margin account customer, as dictated by the Federal Reserve Board in Regulation T.
Loan-to-value ratio (LTV)
The ratio of money borrowed on a property to the property's fair market value.
Loaned flat
Securities lent interest-free between brokers to cover customers' short sale positions.
A futures exchange member who trades securities for his or her own account.
Local expectations hypothesis (LEH)
Theory that bonds similar in all aspects except maturity will have the same holding-period rate of return.
Local expectations theory
A form of the pure expectations theory that suggests that the returns on bonds of different maturities will be the same over a short-term investment horizon.
Local taxes
Property, sewer, school, or other community paid to a locality. Local taxes are usually deductible for federal income tax purposes.
Location-specific advantages
Advantages (natural and created) that are available only or primarily in a particular place.
Locational arbitrage
Attempt to exploit discrepancies in exchange rates between banks.
Used in the context of general equities. Make a market both ways (bid and offer) either on the bid, offering, or an in-between price only. Locking on the offering occurs to attract a seller, since the trader is willing to pay (and ask) the offering side when others only ask it. Locking on the bid side attracts buyers for similar reasons. Typically, the sell side requires a plus tick to comply with short sale rules.
Lock in
To ensure that an individual transacts all his or her business with a sole broker by providing superior services, such as accommodating block buy and sell needs or preparing excellent research (soft-dollar lock). This usually guarantees a certain volume of business.
With PAC bond CMO classes, the period before the PAC sinking fund becomes effective. With multifamily loans, the period of time during which prepayment is prohibited.
Lock-up CDs
CDs that are issued with the tacit understanding that the buyer will not trade the certificate. Quite often, the issuing bank will insist that it hold the certificate for safekeeping by it to ensure that the buyer holds the understanding.
Lockup option
Often used in risk arbitrage. Privilege offered a white knight (friendly acquirer) by a target company to buy crown jewels or additional equity. The aim is to discourage a hostile takeover. See: Shark repellent.
A collection and processing service provided to firms by banks, which collect payments from a dedicated postal box to which the firm directs its customers to send payment to. The banks make several collections per day, process the payments immediately, and deposit the funds into the firm's bank account.
Locked in
When an investor is unable to take advantage of preferential tax treatment because of time remaining on a required holding period. Also, a commodities position in which the market has a limit up or limit down day and investors are unable to move in to or out of the market.
Locked market
A market is locked if the bid price equals the ask price. This can occur, for example, if the market is brokered and one side pays brokerage only, in over-the-counter trading the initiator of the transaction. Highly competitive market environment with inside bid and offering at the same price. Often occurs when an OTC dealer has not updated the market.
Log-linear least-squares method
A statistical technique for fitting a curve to a set of data points. One of the variables is transformed by taking its logarithm, and then a straight line is fitted to the transformed set of data points.
Lognormal distribution
Pattern of frequency of occurrence in which the logarithm of the variable follows a normal distribution. Lognormal distributions are used to describe returns calculated over periods of a year or more.
Lombard rate
Applies mainly to international equities. Interest rate the German Bundesbank uses as an upper limit to the day-to-day money rate, since no bank will pay higher rates in the money market than it has to pay for very short-term recourse to Lombard credit.
London Commodity Exchange (LCE)
Merged with the London International Financial Futures and Options Exchange in 1996.
London Interbank Bid Rate (LIBID)
The bid rate that a Euromarket bank is willing to pay to attract a deposit from another Euromarket bank in London. Related: LIBOR.
London Interbank Offered Rate (LIBOR)
The rate of interest that major international banks in London charge each other for borrowings. Many variable interest rates in the US are based on spreads off LIBOR. By contrast with the bid rate LIBID quoted by banks seeking such deposits.
London International Financial Futures and Options Exchange (LIFFE)
A leading market for trading options and futures on euro money market derivatives.
London Metal Exchange (LME)
A market for trading base metals, where traded options contracts are available against the underlying futures contract.
London Stock Exchange (LSE)
The U.K.'s six regional exchanges joined together in 1973 to form the stock exchange of Great Britain and Ireland, later named the LSE. The FTSE 100 index (known as the footsie) is its dominant index.
One who has bought a contract to establish a market position and who has not yet closed out this position through an offsetting sale; the opposite of short.
Long bonds
Bonds with a long current maturity. The "long bond" is the 30-year US Treasury bond.
Long coupons
(1) Bonds or notes with a long current maturity. (2) A bond on which one of the coupon periods, usually the first, is longer than the other periods or the standard period.
Long-term forward contracts
Contracts that state exchange rate at which a specified amount of a particular currency can be exchanged at a future date (more than one year from today).
Long hedge
The purchase of a futures contract in anticipation of actual purchases in the cash market. Used by processors or exporters as protection against an advance in the cash price. Related: hedge, short hedge
Long leg
The part of an option spread in which an agreement to buy the underlying security is made.
Long market value
The market value of a security, excluding options, as of the close of the last business day.
Long position
Owning or holding options (i.e., the number of contracts bought exceeds the number of contracts sold). For equities, a long position occurs when an individual owns securities. An owner of 1,000 shares of stock is said to be "Long the stock." Related: Short position.
Long position in an option
Purchase of an options.
Long run
A period of time in which all costs are variable; longer than one year.
Long straddle
Taking a long position in both a put and a call option.
In accounting terms, one year or longer.
Long-term assets
Value of property, equipment, and other capital assets minus the depreciation. This is an entry in the bookkeeping records of a company. It is usually established on a "cost" basis, and thus does not necessarily reflect the market value of the assets.
Long-term capital gain
A profit on the sale of a security or mutual fund share that has been held for more than one year.
Long-term debt
An obligation having a maturity of more than one year from the date it was issued. Also called funded debt.
Long-term debt/capitalization
Indicator of financial leverage. Shows long-term debt as a proportion of the capital available. Determined by dividing long-term debt by the sum of long-term debt, preferred stock and common stockholder's equity.
Long-term debt-to-equity ratio
A capitalization ratio comparing long-term debt to shareholders' equity.
Long-term debt ratio
The ratio of long-term debt to total capitalization.
Long-Term Anticipation Securities (LEAPS)
Long-term options.
Long-term financial plan
Financial plan covering two or more years of future operations.
Long-term financing
Liabilities repayable in more than one year plus equity.
Long-term gain
A profit on the sale of a capital assets held longer than 12 months, and eligible for long-term capital gains tax treatment.
Long-term goals
Financial goals expected to be accomplished in five years or longer.
Long-term investor
A person who makes investments for a period of at least five years in order to finance his or her long-term goals.
Long-term liabilities
Amount owed for leases, bond repayment, and other items due after 1 year.
Long-term loss
A loss on the sale of a capital asset held less than 12 months that can be used to offset a capital gain.
Used for listed equity securities. See: Picture.
A method for calculating US taxes owed on income from controlled foreign corporations that was introduced by the Tax Reform Act of 1986.
Lookback option
An option that allows the buyer to choose as the option strike price any price of the underlying asset that has occurred during the life of the option. For a call option, the buyer will choose the minimum price; for a put option, the buyer will choose the maximum price. This option will always be in the money.
Looking for
In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with.
A technicality in some legislation or regulation that makes it possible to avoid certain consequences or circumvent a rule without breaking the law, such as in the use of a tax shelter.
Loose credit
Policy by the Federal Reserve Board to make loans less expensive and more available by reducing interest rates through open market operations.
The opposite of gain.
Loss Carry-Back (Carry-Forward)
A tax provision that allows operating losses to be used as a tax shield to reduce taxable income in prior and future years. Losses can be carried backward for up to three years and forward for up to 15 years under current tax codes.
Loss-control activities
Actions that an insured person or company takes at the instigation of an insurance company in order to prevent accidents or losses.
Loss-of-income insurance
Insurance coverage that will pay out income that a policyholder loses as a result of a disability, injury, or business disruption.
Loss ratio
The ratio of losses paid or accrued by an insurer to premiums collected over a year.
In the context of general equities, this blocks or portions of trades. Can express a specific transaction in a stock at a certain time, often implying execution at the same price (e.g., "I traded 40m in two lots of 10 and four lots of 5.").
Louvre Accord
1987 agreement between countries to attempt to stabilize the value of the US dollar.
In the context of general equities, this is a specific minimum limit required by a seller in execution an order ("I'll sell 50 with an eighth low."); implies a not-held limit order. Antithesis of top.
Low balance method
A method of calculating interest on the basis of the lowest balance of an account over the applicable period.
Low ball
Slang for making an offer well below the fair value of an asset in hopes that the seller may be desperate to sell.
Low-coupon bond refunding
Refunding of a low-coupon bond with a new, higher-coupon bond.
Low grade
A bond with a rating of B or lower.
Low-load fund
A mutual fund that charges a sales commission of 3.5% or less for the purchase of shares.
Low price
The day's lowest price of a security that has changed hands between a buyer and a seller.
Low price-earnings ratio effect
The tendency of portfolios of stocks with a low price-earnings ratio to outperform portfolios of stocks with high price-earnings ratios.
Lump sum
A large one-time payment of money.
Lump-sum distribution
A single payment that represents an employee's interest in a qualified retirement plan. The payment must be prompted by retirement (or other separation from service), death, disability, or attainment of age 59-1/2, and must be made within a single tax year to avoid the federal government's 10% penalty tax.
Lyapunov Exponents
A measure of the dynamics of an attractor. Each dimension has a Lyapunov exponent. A positive exponent measures sensitive dependence on initial conditions, or how much our forecasts can diverge based upon different estimates of starting conditions. Another way to view Lyapunov exponents is the loss of predictive ability as we look forward into time. Strange Attractors are characterized by at least one positive exponent. A negative exponent measures how points converge towards one another. Point Attractors are characterized by all negative variables. See: Attractor, Limit Cycle, Point Attractor, Strange Attractor.

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

[Version October 15, 2002.]

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