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Investments Dictionary

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Law of One Price
The rule stipulating that equivalent securities or bundles of securities must sell at equal prices to preclude arbitrage opportunities.
Leading Economic Indicators
Economic series that tend to rise or fall in advance of the rest of the economy.
Leverage Ratio
Ratio of debt to total capitalization of a firm.
The last‐in first‐out accounting method of valuing inventories.
Limit Order
An order specifying a price at which an investor is willing to buy or sell a security.
Limited Liability
The fact that shareholders have no personal liability to the creditors of the corporation in the event of bankruptcy.
Liquidation Value
Net amount that could be realized by selling the assets of a firm after paying the debt.
Liquidity refers to the speed and ease with which an asset can be converted to cash.
Liquidity Preference Theory
Theory that the forward rate exceeds expected future interest rates.
Liquidity Premium
Forward rate minus expected future short interest rate.
Sales charge on the purchase of some mutual funds.
Load Fund
A mutual fund with a sales commission, or load.
Lock-up Period
Period in which investors cannot redeem investments in the hedge fund.
Lognormal Distribution
The log of the variable has a normal (bell‐shaped) distribution.
London Interbank Offered Rate (LIBOR)
Rate that most creditworthy banks charge one another for large loans of Eurodollars in the London market.
Long Position Hedge
Hedging the future cost of a purchase by taking a long futures position to protect against changes in the price of the asset.
Lower Partial Standard Deviation
Standard deviation computed using only the portion of the probability distribution below the mean of the variable.

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