1closed-end fund
shares may not be redeemed, but instead are traded at prices that can differ from net asset value.
2exchange traded funds
offshoots of mutual funds that allow investors to trade entire portfolios much like shares of stock.
3fund of funds
mutual funds that primarily invest in shares of other mutual funds.
4hedge fund
a private investment pool, open the wealthy or institutional investors, that is largely exempt from SEC regulation and therefore can pursue more speculative policies than mutual funds.
5load
a sales commision charged on a mutual fund.
6net asset value (NAV)
assets minus liabilites expressed on a per-share basis
7investment companies
financial intermediaries that invest the funds of individual investors in securities or other assets.
8open-end fund
a fund that issues or redeems its shares at net aset value.
9turnover
the ratio of the trading activity of a portfolio to the assets of the portfolio.
10unit investment trust
money pooled from many investors that is invested in a portfolio fixed for the life of the fund.
11Absolute returns
refers to the total return an investment generates over a specific period, expressed as a percentage, without comparing it to any benchmark or market index.
12arithmetic average
the sum of returns in each period divided by the number of periods (simple average)
13excess return
rate of return in excess of the risk-free rate.
14expected return
the mean value of the distribution of HPR (Holding Period Return)
15geometric average
the single per-period return that gives the same cumulative performances as the sequence of actual returns (CAGR)
16holding period return (HPR)
rate of return over a given investment period
17inflation rate
the rate at which prices are rising, measured as the rate of increase of the CPI (Consumer Price Index)
18kurtosis
measures of the fatness of the tails of a probability distribution relative to that of a normal distribution. indicates likelihood of extreme outcomes.
19mean-variance analysis
evaluating portfolios according to their expected returns and standard deviations (or variances)
20nominal interest rate
the interest rate in terms of nominal (not adjusted for purchasing power) dollars
21passive strategy
investment policy that avoids security analysis. often entails indexing.
indexing refers to the practice of investing in a portfolio that mimics a market index (S&P 500) rather than actively selecting individual stocks or timing the market.
22real interest rate
the growth rate of purchasing power derived from an investment.
23risk free rate
rate of return that can be earned with certainty, often measured by the rate on Treasury Bills.
24risk premium
an expected return in excess of that on risk-free securities.
think of it as the extra return an investor demands for taking on additional risk compared to a risk-free investment like a Tbond.
25sharpe ratio
ratio of portfolio risk premium to stdev.
=Portfolio risk premium/standard deviation of portfolio excess return.
26skew
measures of the asymmetry of a probability distribution.
27standard deviation
the square root of the variance.
28variance
the expected value of the square deviation from the mean.
29alpha
a stock's expected excess return beyond that consistent with its beta and the market's excess return.
measures an investment's performance relative to a benchmark index (reference point used to measure the performance of an investment or portfolio). it shows how much an investment beats or lags the market after adjusting for risk.
30beta
the sensitivity of a security's return to the return on the market index.
measures how much an investment moves relative to the overall market.
=1 --> moves in line with the market
>1--> more volatile than the market (higher risk)
<1 --> less volatile than the market (lower risk)
=0--> no correlation with the market
<0--> moves opposite to the market
31r-squared
is a statistical measure that shows how well the performance of an investment or portfolio can be explained by its relationship with a benchmark (like the market).
simply, it tells you the percentage of the investment's movements are correlated with the bench market.
=1 (100%) means the investment's performance is perfectly explained by the benchmark.
=0 means there is no correlation between the investment and the benchmark.
the higher this is means the more reliable the benchmark is in explaining the investment's behavior.
32covariance
the directional relationship between the return on two assets.
measure of how two variables (like there returns of two instruments) move together. it indicates whether the two variables tend to increase or decrease at the same time.
33correlation
a statistic that measure the degree to which two securities move in relation to eachother.
34diversifiable risk, unique risk, firm-specific risk, nonsystematic risk
risk that can be eliminated by diversification.
35market risk, nondiversifiable risk, systematic risks
risk that factors the whole economy, cannot be eliminated by diversification.
36index model
is a financial model that explains a stock's return based on its relationship with a market index. it simplifies return calculations by assuming that a stock's performance is influenced by the overall market and some firm-specific factors.