Glossary of Financial Terms: A
This article is from the Glossary of
Glossary of Financial Terms: A
A measure of selection risk (also known as residual risk) of a
mutual fund in relation to the market. A positive alpha is the
extra return awarded to the investor for taking a risk, instead of
accepting the market return. For example, an alpha of 0.4 means
the fund outperformed the market-based return estimate by 0.4
%. -0.6 means a fund's monthly return was 0.6 % less than would
have been predicted from the change in the market alone.
- Alpha Equation
The alpha of a fund is determined as follows:
[ (sum of y) - ((b)(sum of x)) ] / n
where: n =number of observations (36 mos)
b = beta of the fund
x = rate of return for the S&P 500
y = rate of return for the fund
- American depositary receipts
Certificates issued by a U.S. Depositary Bank, representing
foreign shares held by the bank, usually by a branch or
correspondent in the country of issue. One ADR may represent a
portion of a foreign share, one share or a bundle of shares of a
foreign corporation. If the ADR's are "sponsored," the corporation
provides financial information and other assistance to the bank
and may subsidize the administration of the ADR's. "Unsponsored"
ADR's do not receive such assistance. ADR's carry the same
currency, political and economic risks as the underlying foreign
share; the prices of the two, adjusted for the SDR/ordinary ratio,
are kept essentially identical by arbitrage. American Depositary
Shares (ADS) are a similar form of certification.
- American-style option
An option contract that can be exercised at any time between the
date of purchase and the expiration date. Most exchange-traded
options are American style.
Employee of a brokerage or fund management house who studies
companies and makes buy and sell recommendations on their
stocks. Most specialize in a specific industry.
- Annual report
Yearly record of a publicly held company's financial condition. It
includes a description of the firm's operations, its balance sheet
and income statement. SEC rules require that it be distributed to
all shareholders. A more detailed version is called a 10-K.
Profiting from differences in the price of a single security that
is traded on more than one market.
- Arms Index
Also known as TRading INdex (TRIN):= #advancing issues/#declining
Total up volume/total down volume
An advance/decline market indicator. Less than 1.0 indicates bullish
above 1.0 is bearish. The index often is smoothed with a simple
The receipt of an exercise notice by an options writer that
requires him to sell (in the case of a call) or purchase (in the
case of a put) the underlying security at the specified strike
- At the money
An option is at-the-money if the strike price of the option is
equal to the market price of the underlying security. For example,
if xyz stock is trading at 54, then the xyz 54 option is
Using previous data to predict future data.
An arithmetic mean of selected stocks intended to represent the
behavior of the market or some component of it. One good example
is the widely quoted Dow Jones Industrial Average, which adds the
current prices of the 30 DJIA's stocks, and divides the results by
a predetermined number, the divisor.
- Average maturity
The average time to maturity of securities held by a mutual
fund. Changes in interest rates have greater impact on funds with
longer average life.