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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
- 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
- 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
- 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
- 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
- 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
- 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
- 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.