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.
- Peak
- 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.
- Premium
- 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.
- Principal
- 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.
- Prospectus
- 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.
- Proxy
- 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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