Copy of `New York Times - Business and Finance Glossary`

The wordlist doesn't exist anymore, or, the website doesn't exist anymore. On this page you can find a copy of the original information. The information may have been taken offline because it is outdated.

New York Times - Business and Finance Glossary Category: Economy and Finance Date & country: 11/09/2007, USA Words: 2680

Linter's observations
John Lintner's work (1956) suggested that dividend policy is related to a target level of dividends and the speed of adjustment of change in dividends.

Liquid asset
Asset that is easily and cheaply turned into cash - notably cash itself and short-term securities.

Liquid yield option note (LYON)
Zero-coupon, callable, putable, convertible bond invented by Merrill Lynch & Co.

Liquidating dividend
Payment by a firm to its owners from capital rather than from earnings.

Liquidation
When a firm's business is terminated, assets are sold, proceeds pay creditors and any leftovers are distributed to shareholders. Any transaction that offsets or closes out a Long or short position. Related: buy in, evening up, offsetliquidity.

Liquidation rights
The rights of a firm's securityholders in the event the firm liquidates.

Liquidation value
Net amount that could be realized by selling the assets of a firm after paying the debt.

Liquidator
Person appointed by unsecured creditors in the United Kingdom to oversee the sale of an insolvent firm's assets and the repayment of its debts.

Liquidity
A market is liquid when it has a high level of trading activity, allowing buying and selling with minimum price disturbance. Also a market characterized by the ability to buy and sell with relative ease.

Liquidity diversification
Investing in a variety of maturities to reduce the price risk to which holding long bonds exposes the investor.

Liquidity preference hypothesis
The argument that greater liquidity is valuable, all else equal. Also, the theory that the forward rate exceeds expected future interest rates.

Liquidity premium
Forward rate minus expected future short-term interest rate.

Liquidity ratios
Ratios that measure a firm's ability to meet its short-term financial obligations on time.

Liquidity risk
The risk that arises from the difficulty of selling an asset. It can be thought of as the difference between the 'true value' of the asset and the likely price, less commissions.

Listed stocks
Stocks that are traded on an exchange.

Load fund
A mutual fund with shares sold at a price including a large sales charge -- typically 4% to 8% of the net amount indicated. Some 'no-load' funds have distribution fees permitted by article 12b-1 of the Investment Company Act; these are typically 0. 25%. A 'true no-load' fund has neither a sales charge nor Freddie Mac program, the aggregation that the fund purchaser receives some investment advice or other service worthy of the charge.

Load-to-load
Arrangement whereby the customer pays for the last delivery when the next one is received.

Loan amortization schedule
The schedule for repaying the interest and principal on a loan.

Loan syndication
Group of banks sharing a loan. See: syndicate.

Loan value
The amount a policyholder may borrow against a whole life insurance policy at the interest rate specified in the policy.

Local expectations theory
A form of the pure expectations theory which suggests that the returns on bonds of different maturities will be the same over a short-term investment horizon.

Lock-out
With PAC bond CMO classes, the period before the PAC sinking fund becomes effective. With multifamily loans, the period of time during which prepayment is prohibited.

Lock-up CDs
CDs that are issued with the tacit understanding that the buyer will not trade the certificate. Quite often, the issuing bank will insist that the certificate be safekept by it to ensure that the understanding is honored by the buyer.

Lockbox
A collection and processing service provided to firms by banks, which collect payments from a dedicated postal box that the firm directs its customers to send payment to. The banks make several collections per day, process the payments immediately, and deposit the funds into the firm's bank account.

Locked market
A market is locked if the bid = ask price. This can occur, for example, if the market is brokered and brokerage is paid by one side only, the initiator of the transaction.

Log-linear least-squares method
A statistical technique for fitting a curve to a set of data points. One of the variables is transformed by taking its logarithm, and then a straight line is fitted to the transformed set of data points.

Lognormal distribution
A distribution where the logarithm of the variable follows a normal distribution. Lognormal distributions are used to describe returns calculated over periods of a year or more.

Long
One who has bought a contract(s) to establish a market position and who has not yet closed out this position through an offsetting sale; the opposite of short.

Long bonds
Bonds with a long current maturity. The 'long bond' is the 30-year U.S. government bond.

Long coupons
(1) Bonds or notes with a long current maturity. (2) A bond on which one of the coupon periods, usually the first, is longer than the other periods or the standard period.

Long hedge
The purchase of a futures contract(s) in anticipation of actual purchases in the cash market. Used by processors or exporters as protection against an advance in the cash price. Related: Hedge, short hedge

Long position
An options position where a person has executed one or more option trades where the net result is that they are an 'owner' or holder of options (i. e. the number of contracts bought exceeds the number of contracts sold). Occurs when an individual owns securities. An owner of 1,000 shares of stock is said to be 'Long the stock.' Related: Short position

Long run
A period of time in which all costs are variable; greater than one year.

Long straddle
A straddle in which a long position is taken in both a put and call option.

Long-term
In accounting information, one year or greater.

Long-term assets
Value of property, equipment and other capital assets minus the depreciation. This is an entry in the bookkeeping records of a company, usually on a 'cost' basis and thus does not necessarily reflect the market value of the assets.

Long-term debt
An obligation having a maturity of more than one year from the date it was issued. Also called funded debt.

Long-term debt ratio
The ratio of long-term debt to total capitalization.

Long-term debt to equity ratio
A capitalization ratio comparing long-term debt to shareholders' equity.

Long-term debt-capitalization
Indicator of financial leverage. Shows long-term debt as a proportion of the capital available. Determined by dividing long-term debt by the sum of long-term debt, preferred stock and common stockholder equity.

Long-term financial plan
Financial plan covering two or more years of future operations.

Long-term liabilities
Amount owed for leases, bond repayment and other items due after 1 year.

Look-thru
A method for calculating U.S. taxes owed on income from controlled foreign corporations that was introduced by the Tax Reform Act of 1986.

Lookback option
An option that allows the buyer to choose as the option strike price any price of the underlying asset that has occurred during the life of the option. If a call, the buyer will choose the minimal price, whereas if a put, the buyer will choose the maximum price. This option will always be in the money.

Low price
This is the day's lowest price of a security that has changed hands between a buyer and a seller.

Low price-earnings ratio effect
The tendency of portfolios of stocks with a low price-earnings ratio to outperform portfolios consisting of stocks with a high price-earnings ratio.

Low-coupon bond refunding
Refunding of a low coupon bond with a new, higher coupon bond.

Macaulay duration
The weighted-average term to maturity of the cash flows from the bond, where the weights are the present value of the cash flow divided by the price.

Magic of diversification
The effective reduction of risk (variance) of a portfolio, achieved without reduction to expected returns through the combination of assets with low or negative correlations (covariances). Related: Markowitz diversification

Mail float
Refers to the part of the collection and disbursement process where checks are trapped in the postal system.

Maintenance margin requirement
A sum, usually smaller than -but part of the original margin, which must be maintained on deposit at all times. If a customer's equity in any futures position drops to, or under, the maintenance margin level, the broker must issue a margin call for the amount at money required to restore the customer's equity in the account to the original margin level. Related: margin, margin call.

Majority voting
Voting system under which each director is voted upon separately. Related: cumulative voting.

Make a market
A dealer is said to make a market when he quotes bid and offered prices at which he stands ready to buy and sell.

Making delivery
Refers to the seller's actually turning over to the buyer the asset agreed upon in a forward contract.

Managed float
Also known as 'dirty' float, this is a system of floating exchange rates with central bank intervention to reduce currency fluctuations.

Management buyout (MBO)
Leveraged buyout whereby the acquiring group is led by the firm's management.

Management fee
An investment advisory fee charged by the financial advisor to a fund based on the fund's average assets, but sometimes determined on a sliding scale that declines as the dollar amount of the fund increases.

Management-closely held shares
Percentage of shares held by persons closely related to a company, as defined by the Securities and exchange commission. Part of these percentages often is included in Institutional Holdings -- making the combined total of these percentages over 100. There is overlap as institutions sometimes acquire enough stock to be considered by the SEC to be closely allied to the company.

Managerial decisions
Decisions concerning the operation of the firm, such as the choice of firm size, firm growth rates, and employee compensation.

Mandatory redemption schedule
Schedule according to which sinking fund payments must be made.

Mangement's discussion
A report from management to the shareholders that accompanies the firm's financial statements in the annual report. This report explains the period's financial results and enables management to discuss other ideas that may not be apparent in the financial statements in the annual report.

Margin
This allows investors to buy securities by borrowing money from a broker. The margin is the difference between the market value of a stock and the loan a broker makes. Related: security deposit (initial).

Margin account (Stocks)
A leverageable account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin rules are federally regulated, but margin requirements and interest may vary among broker/dealers.

Margin call
A demand for additional funds because of adverse price movement. Maintenance margin requirement, security deposit maintenance

Margin of safety
With respect to working capital management, the difference between 1) the amount of long-term financing, and 2) the sum of fixed assets and the permanent component of current assets.

Margin requirement (Options)
The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position valuation and reasonably foreseeable intra-day price changes.

Marginal
Incremental.

Marginal tax rate
The tax rate that would have to be paid on any additional dollars of taxable income earned.

Mark-to-market
The process whereby the book value or collateral value of a security is adjusted to reflect current market value.

Marked-to-market
An arrangement whereby the profits or losses on a futures contract are settled each day.

Market capitalization
The total dollar value of all outstanding shares. Computed as shares times current market price. It is a measure of corporate size.

Market capitalization rate
Expected return on a security. The market-consensus estimate of the appropriate discount rate for a firm's cash flows.

Market clearing
Total demand for loans by borrowers equals total supply of loans from lenders. The market, any market, clears at the equilibrium rate of interest or price.

Market conversion price
Also called conversion parity price, the price that an investor effectively pays for common stock by purchasing a convertible security and then exercising the conversion option. This price is equal to the market price of the convertible security divided by the conversion ratio.

Market cycle
The period between the 2 latest highs or lows of the S&P 500, showing net performance of a fund through both an up and a down market. A market cycle is complete when the S&P is 15% below the highest point or 15% above the lowest point (ending a down market). The dates of the last market cycle are: 12/04/87 to 10/11/90 (low to low).

Market impact costs
Also called price impact costs, the result of a bid/ask spread and a dealer's price concession.

Market model
This relationship is sometimes called the single-index model. The market model says that the return on a security depends on the return on the market portfolio and the extent of the security's responsiveness as measured, by beta. In addition, the return will also depend on conditions that are unique to the firm. Graphically, the market model can be depicted as a line fitted to a plot of asset returns against returns on the market portfolio.

Market order
This is an order to immediately buy or sell a security at the current trading price.

Market overhang
The theory that in certain situations, institutions wish to sell their shares but postpone the share sales because large orders under current market conditions would drive down the share price and that the consequent threat of securities sales will tend to retard the rate of share price appreciation. Support for this theory is largely anecdotal.

Market portfolio
A portfolio consisting of all assets available to investors, with each asset held -in proportion to its market value relative to the total market value of all assets.

Market price of risk
A measure of the extra return, or risk premium, that investors demand to bear risk. The reward-to-risk ratio of the market portfolio.

Market prices
The amount of money that a willing buyer pays to acquire something from a willing seller, when a buyer and seller are independent and when such an exchange is motivated by only commercial consideration.

Market return
The return on the market portfolio.

Market risk
Risk that cannot be diversified away. Related: systematic risk

Market sectors
The classifications of bonds by issuer characteristics, such as state government, corporate, or utility.

Market timer
A money manager who assumes he or she can forecast when the stock market will go up and down.

Market timing
Asset allocation in which the investment in the market is increased if one forecasts that the market will outperform T-bills.

Market timing costs
Costs that arise from price movement of the stock during the time of the transaction which is attributed to other activity in the stock.

Market value
(1) The price at which a security is trading and could presumably be purchased or sold. (2) The value investors believe a firm is worth; calculated by multiplying the number of shares outstanding by the current market price of a firm's shares.

Market value ratios
Ratios that relate the market price of the firm's common stock to selected financial statement items.

Market value-weighted index
An index of a group of securities computed by calculating a weighted average of the returns on each security in the index, with the weights proportional to outstanding market value.

Market-book ratio
Market price of a share divided by book value per share.

Market-if-touched (MIT)
A price order, below market if a buy or above market if a sell, that automatically becomes a market order if the specified price is reached.

Marketability
A negotiable security is said to have good marketability if there is an active secondary market in which it can easily be resold.

Marketed claims
Claims that can be bought and sold in financial markets, such as those of stockholders and bondholders.

Marketplace price efficiency
The degree to which the prices of assets reflect the available marketplace information. Marketplace price efficiency is sometimes estimated as the difficulty faced by active management of earning a greater return than passive management would, after adjusting for the risk associated with a strategy and the transactions costs associated with implementing a strategy.

Markowitz diversification
A strategy that seeks to combine assets a portfolio with returns that are less than perfectly positively correlated, in an effort to lower portfolio risk (variance) without sacrificing return. Related: naive diversification

Markowitz efficient frontier
The graphical depiction of the Markowitz efficient set of portfolios representing the boundary of the set of feasible portfolios that have the maximum return for a given level of risk. Any portfolios above the frontier cannot be achieved. Any below the frontier are dominated by Markowitz efficient portfolios.

Markowitz efficient portfolio
Also called a mean-variance efficient portfolio, a portfolio that has the highest expected return at a given level of risk.

Master limited partnership (MLP)
A publicly traded limited partnership.