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Investments Dictionary

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Scatter Diagram
Plot of returns of one security versus returns of another security. Each point represents one pair of returns for a given holding period.
Seasoned New Issue
Stock issued by companies that already have stock on the market.
Secondary Market
Already existing securities are bought and sold on the exchanges or in the OTC market.
Second-pass Regression
A cross‐sectional regression of portfolio returns on betas. The estimated slope is the measurement of the reward for bearing systematic risk during the period.
Sector Rotation
An investment strategy which entails shifting the portfolio into industry sectors that are forecast to outperform others based on macroeconomic forecasts.
Pooling loans for various purposes into standardized securities backed by those loans, which can then be traded like any other security.
Security Analysis
Determining correct value of a security in the marketplace.
Security Characteristic Line
A plot of the excess return on a security over the risk‐free rate as a function of the excess return on the market.
Security Market Line
Graphical representation of the expected return‐beta relationship of the CAPM.
Security Selection Decision
Choosing the particular securities to include in a portfolio.
Separation Property
The property that portfolio choice can be separated into two independent tasks: (1) determination of the optimal risky portfolio, which is a purely technical problem, and (2) the personal choice of the best mix of the risky portfolio and the risk‐free asset.
Sharpe's Measure
Reward‐to‐volatility ratio; ratio of portfolio excess return to standard deviation.
Shelf Registration
Advance registration of securities with the SEC for sale up to 2 years following initial registration.
Short Position or Hedge
Protecting the value of an asset held by taking a short position in a futures contract.
Short Rate
A one‐period interest rate.
Short Sale
The sale of shares not owned by the investor but borrowed through a broker and later repurchased to replace the loan. Profit is earned if the initial sale is at a higher price than the repurchase price.
Single-factor Model
A model of security returns that acknowledges only one common factor. See factor model
Single-index Model
A model of stock returns that decomposes influences on returns into a systematic factor, as measured by the return on a broad market index, and firm specific factors.
Single-stock Futures
Futures contracts on single stock rather than an index.
Sinking Fund
A procedure that allows for the repayment of principal at maturity by calling for the bond issuer to repurchase some proportion of the outstanding bonds either in the open market or at a special call price associated with the sinking fund provision.
Measure of the asymmetry of a probability distribution.
Small-firm Effect
That investments in stocks of small firms appear to have earned abnormal returns.
Soft Dollars
The value of research services that brokerage houses supply to investment managers "free of charge" in exchange for the investment managers' business.
A trader who makes a market in the shares of one or more firms and who maintains a "fair and orderly market" by dealing personally in the stock.
Undertaking a risky investment with the objective of earning a greater profit than an investment in a risk‐free alternative (a risk premium).
Speculative-grade Bond
Bond rated Ba or lower by Moody's, or BB or lower by Standard & Poor's, or an unrated bond.
Spot Rate
The current interest rate appropriate for discounting a cash flow of some given maturity.
Spot-futures Parity Theorem, or Cost-of-carry Relationship
Describes the theoretically correct relationship between spot and futures prices. Violation of the parity relationship gives rise to arbitrage opportunities.
Spread (futures)
Taking a long position in a futures contract of one maturity and a short position in a contract of different maturity, both on the same commodity.
Spread (options)
A combination of two or more call options or put options on the same stock with differing exercise prices or times to expiration. A money spread refers to a spread with different exercise price; a time spread refers to differing expiration date.
Standard Deviation
Square root of the variance.
Statement of Cash Flows
A financial statement showing a firm's cash receipts and cash payments during a specified period.
Statistical Arbitrage
Use of quantitative systems to uncover many perceived misalignments in relative pricing and ensure profit by averaging over all of these small bets.
Stock Exchanges
Secondary markets where already‐issued securities are bought and sold by members.
Stock Selection
An active portfolio management technique that focuses on advantageous selection of particular stocks rather than on broad asset allocation choices.
Stock Split
Issue by a corporation of a given number of shares in exchange for the current number of shares held by stockholders. Splits may go in either direction, either increasing or decreasing the number of shares outstanding. A reverse split decreases the number outstanding.
Stop Orders
Order to trade contingent on security price designed to limit losses if price moves against the trader.
Stop-loss Order
A sell order to be executed if the price of the stock falls below a stipulated level.
A combination of buying both a call and a put on the same asset, each with the same exercise price and expiration date. The purpose is to profit from expected volatility.
Straight Bond
A bond with no option features such as callability or convertibility.
Street Name
Describes securities held by a broker on behalf of a client but registered in the name of the firm.
Strip, Strap
Variants of a straddle. A strip is two puts and one call on a stock; a strap is two calls and one put, both with the same exercise price and expiration date.
Stripped of Coupons
Describes the practice of some investment banks that sell "synthetic" zero‐coupon bonds by marketing the rights to a single payment backed by a coupon‐paying Treasury bond.
Subordination Clause
A provision in a bond indenture that restricts the issuer's future borrowing by subordinating the new leaders' claims on the firm to those of the existing bond holders. Claims of subordinated or junior debtholders are not paid until the prior debt is paid.
Substitution Swap
Exchange of one bond for a bond with similar attributes but more attractively priced.
Supply Shock
An event that influences production capacity and costs in the economy.
Support Level
A price level below which it is supposedly difficult for a stock or stock index to fall.
Survivorship Bias
Bias in the average returns of a sample of funds induced by excluding past returns on funds that left the sample because they happened to be unsuccessful.
An option on a swap.
Systematic Risk
Risk factors common to the whole economy, nondiversifiable risk; also called market risk.

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