Investment Terms: The Letter "A"

Investing

Investment Terms: The Letter "A"

27th August 2007

This post is not really going to discuss a particular topic in depth but rather is the beginning of a series of posts to follow on MoneyBusiness. These will focus on giving definitions of financial and investment terms from investing to credit to banking. Today's terms are taken from GreekShares.com. Happy learning!

Investing

ALPHA - A measure of selection risk (also known as residual risk) of a mutual fund in relation to the market. A positive alpha is the extra return awarded to the investor for taking a risk, instead of accepting the market return. For example, an alpha of 0.4 means the fund outperformed the market-based return estimate by 0.4 %. -0.6 means a fund's monthly return was 0.6 % less than would have been predicted from the change in the market alone.

ALPHA EQUATION - The alpha of a fund is determined as follows: [ (sum of y) - ((b)(sum of x)) ] / n where: n =number of observations (36 mos) b = beta of the fund x = rate of return for the S&P 500 y = rate of return for the fund

AMERICAN DEPOSITARY RECEIPTS - Certificates issued by a U.S. Depositary Bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR"s are "sponsored," the corporation provides financial information and other assistance to the bank and may subsidize the administration of the ADR's. "Unsponsored" ADR's do not receive such assistance. ADR's carry the same currency, political and economic risks as the underlying foreign share; the prices of the two, adjusted for the SDR/ordinary ratio, are kept essentially identical by arbitrage. American Depositary Shares (ADS) are a similar form of certification.

AMERICAN STOCK EXCHANGE (AMEX) - The second-oldest U.S. stock exchange, located on Wall Street in New York City. Started as an alternative to the NYSE, the AMEX originating on the curb outside the NYSE, where brokers traded stocks that failed to meet the Big Board's listing requirements. Considerably smaller in market capitalization and trading volume than NASDAQ and the NYSE, the AMEX conducts trading through a centralized specialist system and is home primarily to small and medium-sized companies.

AMERICAN-STYLE OPTION - An option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style.

ANALYST - Employee of a brokerage or fund management house who studies companies and makes buy and sell recommendations on their stocks. Most specialize in a specific industry.

ANNUAL REPORT - Yearly record of a publicly held company's financial condition. It includes a description of the firm"s operations, its balance sheet and income statement.

ARBITRAGE - Profiting from differences in the price of a single security that is traded on more than one market.

ARMS INDEX - Also known as TRading INdex (TRIN):= #advancing issues/#declining issues Total up volume/total down volume. An advance/decline market indicator. Less than 1.0 indicates bullish demand, while above 1.0 is bearish. The index often is smoothed with a simple moving average.

ASSIGNMENT - The receipt of an exercise notice by an options writer that requires him to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.

AT THE MONEY - An option is at-the-money if the strike price of the option is equal to the market price of the underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.

AUTOREGRESSIVE - Using previous data to predict future data.

AVERAGE - An arithmetic mean of selected stocks intended to represent the behavior of the market or some component of it. One good example is the widely quoted Dow Jones Industrial Average, which adds the current prices of the 30 DJIA's stocks, and divides the results by a predetermined number, the divisor.

AVERAGE MATURITY - The average time to maturity of securities held by a mutual fund. Changes in interest rates have greater impact on funds with longer average life.

"Risk comes from not knowing what you're doing." - Warren Buffet

Comments (6):

Jerry Says: Good definitions thanks Kev | 08.27.2007 |

Hailey Says: I really am learning something new everyday | 08.27.2007 |

Steve Says: When watching the finance channels like CNBC I heard these terms but at the time they didn't mean anything to me. Now I can watch financial news in the know | 08.27.2007 |

Gem Says: This is really a good effort I look forward to the rest of the alphabet of investing | 08.27.2007 |

Penelope Says: The price of ignorance is more expensive than getting educated! Thanks Kev | 08.27.2007 |

Graham Says: I look forward to reading the rest of the alphabet definitions | 08.27.2007 |

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Investment Terms: The Letter "A"

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