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- 12b-1 fees - Annual fees charged by a mutual fund to pay
for marketing and distribution costs.
- abnormal return - Return on a stock beyond what would be
predicted by market movements alone. Cumulative abnormal
return (CAR) is the total abnormal return for the period
surrounding an announcement or the release of information.
- absolute return - absolute return is an investment strategy aimed at positive, stable returns regardless of the market environment; absolute return investments often include hedge funds, which are private investment pools largely exempt from SEC regulation and have more flexibility in using different financial instruments and strategies that mutual funds.
- accounting earnings - Earnings of a firm as reported on its
- acid test ratio - See quick ratio.
- active management - Attempts to achieve portfolio returns
more than commensurate with risk, either by forecasting
broad market trends or by identifying particular mispriced
sectors of a market or securities in a market.
- active portfolio - In the context of the Treynor-Black model,
the portfolio formed by mixing analyzed stocks of perceived
nonzero alpha values. This portfolio is ultimately mixed
with the passive market index portfolio.
- actuarial assumptions - Estimates of future experience with
respect to rates of mortality, disability, turnover, retirement,
interest rate (also called the investment return or discount
rate) and inflation. Demographic assumptions (rates of
mortality, disability, turnover and retirement) are generally
based on past experience, often modified for projected changes
in conditions. Economic assumptions (interest rate and
inflation) consist of an underlying rate in an inflation free
environment plus a provision for a long term average rate of
- actuarial gain (loss) - The difference between actual
experience and actuarial assumed experience during the
period between two actuarial evaluation dates, as determined
in accordance with a particular actuarial funding method.
- actuarial liability - The actuarial liability is the present value
of system benefits that have been allocated by an Actuarial
Cost Method to past service as of the valuation date. It has also
been the difference between the present value of future
benefits and the present value of future normal costs. It is
referred to by some actuaries as the “accrued liability”.
- actuarial present value - The amount of funds currently
required to provide a payment or series of payments in the
future. It is determined by discounting future payments at
predetermined rates of interest and by probabilities of
- actuarial value of assets - The actuarial value of assets equals
the market value of assets adjusted according to a smoothing
method. The smoothing method in Illinois law is intended to
smooth out the short term volatility of investment returns in
order to stabilize contribution rates and the funded status
reported under GASB 25 and 27.
- actuarial cost method - A mathematical budgeting procedure
for allocating the dollar amount of the “actuarial present value
of future plan benefits” between the actuarial present value of
future normal costs and the actuarial accrued liability.
Sometimes referred to as the “actuarial funding method”.
- adjusted alphas - Forecasts for alpha that are modulated to
account for statistical imprecision in the analyst's estimate
- agency problem - Conflicts of interest among stockholders,
bondholders, and managers.
- alpha - The abnormal rate of return on a security in excess
of what would be predicted by an equilibrium model like
CAPM or APT.
- American depository receipts (ADRs) - Domestically traded
securities representing claims to shares of foreign stocks.
- American option - An American option can be exercised
before and up to its expiration date. Compare with a
European option, which can be exercised only on the
- announcement date - Date on which particular news
concerning a given company is announced to the public.
Used in event studies, which researchers use to evaluate the
economic impact of events of interest.
- annual percentage rate (APR) - Interest rate is annualized
using simple rather than compound interest.
- annual required contribution - The sum of the normal cost
and amortization of the unfunded actuarial accrued liability
over a period not to exceed 30 years. Currently required for
accounting principles by the Government Accounting
Standards Board (GASB).
- anomalies - Patterns of returns that seem to contradict the
efficient market hypothesis.
- appraisal ratio - The signal-to-noise ratio of an analyst's
forecasts. The ratio of alpha to residual standard deviation.
- arbitrage - A zero-risk, zero-net investment strategy that still
- arbitrage pricing theory - An asset pricing theory that is
derived from a factor model, using diversification and
arbitrage arguments. The theory describes the relationship
between expected returns on securities, given that there are
no opportunities to create wealth through risk-free arbitrage
- asked price - The price at which a dealer will sell a security.
- asset allocation - Choosing among broad asset classes such
as stocks versus bonds.
- asset smoothing method - A method of asset valuation where
the annual fluctuation in the market value of assets is averaged
over a period of years. See actuarial value of assets above.
- at the money - When the exercise price and asset price of an
option are equal
- auction market - A market where all traders in a good
meet at one place to buy or sell an asset. The NYSE is an
- average collection period or days' receivables - The ratio
of accounts receivable to sales, or the total amount of credit
extended per dollar of daily sales (average AR/sales X 365).