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- Random Walk
- Describes the notion that stock price changes
are‐random and unpredictable.
- Rate Anticipation Wwap
- A switch made in response to
forecasts of interest rates.
- Real Assets, Financial Assets
- Real assets are land, buildings,
and equipment that are used to produce goods and services.
Financial assets are claims such as securities to the income
generated by real assets.
- Real Interest Rate
- The excess of the interest rate over the
inflation rate. The growth rate of purchasing power derived
from an investment.
- Realized Compound Return
- Yield assuming that coupon
payments are invested at the going market interest rate at the
time of their receipt and rolled over until the bond matures.
- Realigning the proportions of assets in a portfolio
- Registered Bond
- A bond whose issuer records ownership
and interest payments. Differs from a bearer bond, which is
traded without record of ownership and whose possession is its only evidence of ownership.
- Regression Equation
- An equation that describes the average
relationship between a dependent variable and a set of
- Regret Avoidance
- Notion from behavioral finance that
individuals who make decisions that turn out badly will have
more regret when that decision was more unconventional.
- Reinvestment Rate Risk
- The uncertainty surrounding
the cumulative future value of reinvested bond coupon
- Real estate investment trust, which is similar to a
closed‐end mutual fund. REITs invest in real estate or loans
secured by real estate and issue shares in such investments.
- One who receives the principal of a trust
when it is dissolved.
- Replacement Cost
- Cost to replace a firm's assets.
AKA "Reproduction cost”.
- Representativeness Bias
- People seem to believe that a small
sample is just as representative of a broad population as a
large one and therefore infer patterns too quickly.
- Repurchase Agreements (Repos)
- Short‐term, often overnight,
sales of government securities with an agreement to
repurchase the securities at a slightly higher price. A reverse
repo is a purchase with an agreement to resell at a specified
price on a future date.
- Residual Claim
- Refers to the fact that shareholders are at the
bottom of the list of claimants to assets of a corporation in
the event of failure or bankruptcy.
- Residual Income
- See economic value added (EVA).
- Parts of stock returns not explained by the
explanatory variable (the market‐index return). They measure
the impact of firm‐specific events during a particular period.
- Resistance Level
- A price level above which it is supposedly
difficult for a stock or stock index to rise.
- Return on Assets (ROA)
- A profitability ratio; earnings
before interest and taxes divided by total assets.
- Return on Equity (ROE)
- An accounting ratio of net profits
divided by equity.
- Return on Sales (ROS), or Profit Margin
- The ratio of
operating profits per dollar of sales (EBIT divided by sales).
- Reversal Effect
- The tendency of poorly performing stocks
and well‐performing stocks in one period to experience
reversals in following periods.
- Reversing Trade
- Entering the opposite side of a currently
held futures position to close out the position.
- Reward-to-volatility Ratio
- Ratio of excess return to portfolio
- Riding the Yield Curve
- Buying long‐term bonds in anticipation
of capital gains as yields fall with the declining maturity of the bonds.
- Risk Arbitrage
- Speculation on perceived mispriced securities,
usually in connection with merger and acquisition targets.
- Risk Premium
- An expected return in excess of that on risk-free
securities. The premium provides compensation for the
risk of an investment.
- Risk-averse, Risk-neutral, Risk Lover
- A risk‐averse investor will consider risky portfolios only if they provide compensation for risk via a risk premium. A risk‐neutral investor finds the level of risk irrelevant and considers only the expected return of risk prospects. A risk lover is willing to accept lower expected returns on prospects with higher amounts of risk.
- Risk-free Asset
- An asset with a certain rate of return; often
taken to be short-term T-bills.
- Risk-free Rate
- The interest rate that can be earned with
- Risk-return Trade-off
- If an investor is willing to take on
risk, there is the reward of higher expected returns.
- Risky Asset
- An asset with an uncertain rate of return.