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Investments Dictionary

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Macaulay's Duration
Effective maturity of bond, equal to weighted average of the times until each payment, with weights proportional to the present value of the payment.
Maintenance, or Variation, Margin
An established value below which a trader's margin cannot fall. Reaching the maintenance margin triggers a margin call.
Describes securities purchased with money borrowed from a broker. Current maximum margin is 50%.
Market Capitalization Rate
The market‐consensus estimate of the appropriate discount rate for a firm's cash flows.
Market Model
Another version of the index model that breaks down return uncertainty into systematic and nonsystematic components.
Market Neutral
A strategy designed to exploit relative mispricing within a market, but which is hedged to avoid taking a stance on the direction of the broad market.
Market or Systematic Risk, Firm-specific Risk
Market risk is risk attributable to common macroeconomic factors. Firm‐specific risk reflects risk peculiar to an individual firm that is ill dependent of market risk.
Market Order
A buy or sell order to be executed immediately at current market prices.
Market Portfolio
The portfolio for which each security is held in proportion to its market value.
Market Price of Risk
A measure of the extra return, or risk premium, that investors demand to bear risk. The reward torisk ratio of the market portfolio.
Market Risk
See systematic risk.
Market Segmentation or Preferred Habitat Theory
The theory that long- and short-maturity bonds are traded in essentially distinct or segmented markets and that prices in one market do not affect those in the other.
Market Timer
An investor who speculates on broad market moves rather than on specific securities.
Market Timing
Asset allocation in which the investment in the market is increased if one forecasts that the market will outperform T‐bills.
Market Value of Assets
The fair value of the plans assets assuming that all holdings are liquidated on the measurement date.
Market-book-value Ratio
of price per share to book value per share.
Market-Value-Weighted Index
An index of a group of securities computed by calculating a weighted average of the returns of each security in the index, with weights proportional to outstanding market value.
Marking to Market
Describes the daily settlement of obligations on futures positions.
Mean-Variance Analysis
Evaluation of risky prospects based on the expected value and variance of possible outcomes.
Mean-Variance Criterion
The selection of portfolios based on the means and variances of their returns. The choice of the higher expected return portfolio for a given level of variance or the lower variance portfolio for a given expected return.
Mental Accounting
Individuals mentally segregate assets into independent accounts rather than viewing them as part of a unified portfolio.
Minimum-Variance Frontier
Graph of the lowest possible portfolio variance that is attainable for a given portfolio expected return.
Minimum-Variance Portfolio
The portfolio of risky assets with lowest variance.
Modern Portfolio Theory (MPT)
Principles underlying analysis and evaluation of rational portfolio choices based on risk‐return trade‐offs and efficient diversification.
Modified Duration
Macaulay's duration divided by 1 + yield to maturity. Measures interest rate sensitivity of bond.
Momentum Effect
The tendency of poorly performing stocks and well‐performing stocks in one period to continue that abnormal performance in following periods.
Monetary Policy
Actions taken by the Board of Governors of the Federal Reserve System to influence the money supply or interest rates.
Money Market
Includes short‐term, highly liquid, and relatively low‐risk debt instruments.
Mortality Tables
Tables of probability that individuals of various ages will die within a year.
Mortgage-backed Security
Ownership claim in a pool of mortgages or an obligation that is secured by such a pool. Also called a pass‐through, because payments are passed along from the mortgage originator to the purchaser of the mortgage‐backed security.
Multifactor CAPM
Generalization of the basic CAPM that accounts for extra‐market hedging demands.
Multifactor Models
Model of security returns positing that returns respond to several systematic factors.
Municipal Bonds
Tax-exempt bonds issued by state and local governments, generally to finance capital improvement projects. General obligation bonds are backed by the general taxing power of the issuer. Revenue bonds are backed by the proceeds from the project or agency they are issued to finance.
Mutual Fund
A firm pooling and managing funds of investors.
Mutual Fund Theorem
A result associated with the CAPM, asserting that investors will choose to invest their entire risky portfolio in a market‐index mutual fund.

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