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
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.
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