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Investments Dictionary

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P/E Effect
That portfolios of low PIE stocks have exhibited higher average risk-adjusted returns than high PIE stocks.
Pairs Trading
Stocks are paired up based on underlying similarities, and longshort positions are established to exploit any relative mispricing between each pair.
Par Value
The face value of the bond.
Passive Investment Strategy
See passive management.
Passive Management
Buying a well-diversified portfolio to represent a broad-based market index without attempting to search out mispriced securities.
Passive Portfolio
A market index portfolio.
Passive Strategy
See passive management.
Pass-through Security
Pools of loans (such as home mortgage loans) sold in one package. Owners of pass‐throughs receive all principal and interest payments made by the borrowers.
The transition from the end of an expansion to the start of a contraction.
Personal Trust
An interest in an asset held by a trustee for the benefit of another person.
Plowback Ratio
The proportion of the firm's earnings that is reinvested in the business (and not paid out as dividends). The plowback ratio equals 1 minus the dividend payout ratio.
Political Risk
Possibility of the expropriation of assets, changes in tax policy, restrictions on the exchange of foreign currency for domestic currency, or other changes in the business climate of a country.
Portable Alpha; Alpha Transfer
A strategy in which you invest in positive alpha positions, then hedge the systematic risk of that investment, and, finally, establish market exposure where you want it by using passive indexes.
Portfolio Insurance
The practice of using options or dynamic hedge strategies to provide protection against investment losses while maintaining upside potential.
Portfolio Management
Process of combining securities in a portfolio tailored to the investor's preferences and needs, monitoring that portfolio, and evaluating its performance.
Portfolio Opportunity Set
The expected return‐standard deviation pairs of all portfolios that can be constructed from a given set of assets.
Posterior Distribution
Probability distribution for a variable after adjustment for empirical evidence on its likely value.
Preferred Habitat Theory
Holds that investors prefer specific maturity ranges but can be induced to switch if risk premiums are sufficient.
Preferred Stock
Nonvoting shares in a corporation, paying a fixed or variable stream of dividends.
The purchase price of an option.
Premium Bonds
Bonds selling above par value.
Present Value of Future Benefits
The actuarial present value of all benefits promised in the future to current members of the plan assuming all actuarial assumptions are met.
Present Value of Future Normal Cost
The actuarial present value of retirement system benefits allocated to future years of service.
Present Value of Growth Opportunities (PVGO)
Net present value of a firm's future investments.
Price Value of a Basis Point
The change in the value of a fixed‐income asset resulting from a 1 basis point change in the asset's yield to maturity.
Price-earnings Multiple
See price‐earnings ratio.
Price-earnings Ratio
The ratio of a stock's price to its earnings per share. Also referred to as the PIE multiple.
Price-weighted Average
Weighted average with weights proportional to security prices rather than total capitalization.
Primary Market
New issues of securities are offered to the public here.
Primitive Security, Derivative Security
A primitive security is an instrument such as a stock or bond for which payments depend only on the financial status of its issuer. A derivative security is created from the set of primitive securities to yield returns that depend on factors beyond the characteristics of the issuer and that may be related to prices of other assets.
The outstanding balance on a loan.
Prior Distribution
Probability distribution for a variable before adjusting for empirical evidence on its likely value.
Private Placement
Primary offering in which shares are sold directly to a small group of institutional or wealthy investors.
Profit Margin
See return on sales.
Program Trading
Coordinated buy orders and sell orders of entire portfolios, usually with the aid of computers, often to achieve index arbitrage objectives.
Projected Unit Credit (PUC)
A method under which the benefits of each individual included in an actuarial valuation are allocated by a consistent formula to the years in which they are earned. The actuarial present value of benefits allocated to a valuation year is called the normal cost. The actuarial present value of benefits allocated to all periods prior to a valuation year is called the actuarial liability.
Prospect Theory
Behavioral (as opposed to rational) model of investor utility. Investor utility depends on changes in wealth rather than levels of wealth.
A final and approved registration statement including the price at which the security issue is offered.
Protective Covenant
A provision specifying requirements of collateral, sinking fund, dividend policy, etc, designed to protect the interests of bondholders.
Protective Put
Purchase of stock combined with a put option that guarantees minimum proceeds equal to the put's exercise price.
An instrument empowering an agent to vote in the name of the shareholder.
Prudent Investor Rule
An investment manager must act in accord with the actions of a hypothetical prudent investor.
Pseudo-American Call Option Value
The maximum of the value derived by assuming that an option will be held until expiration and the value derived by assuming that the option will be exercised just before an ex‐dividend date.
Public Offering, Private Placement
A public offering consists of bonds sold in the primary market to the general public; a private placement is sold directly to a limited number of institutional investors
Pure Plays
Bets on particular mispricing across two or more securities, with extraneous sources of risk such as general market exposure hedged away.
Pure Yield Curve
Refers to the relationship between yield to maturity and time to maturity for zero‐coupon bonds
Pure Yield Pickup Swap
Moving to higher‐yield bonds.
Put Bond
A bond that the holder may choose either to exchange for par value at some date or to extend for a given number of years.
Put Option
The right to sell an asset at a specified exercise price on or before a specified expiration date.
Put/Call Ratio
Ratio of put options to call options outstanding on a stock.
Put-Call Parity Theorem
An equation representing the proper relationship between put and call prices. Violation of parity allows arbitrage opportunities.

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