Glossary

A type of numerical average calculated by dividing the number of observations by the reciprocal of each number in the series. Commonly used to find the average purchase price of a stock when employing the dollar cost averaging strategy.

A reversal pattern that is formed in three parts: a left shoulder, head, and right shoulder. Used to predict a change from an uptrend to a downtrend.

The inflation rate calculated based on the price index that includes all goods and services in an economy. Compare: Core Inflation

Heat map is a graphical representation of data in which the individual values contained in a matrix are represented as colors. Heat maps are used to visualize patterns and trends in data sets, and are particularly useful for understanding complex data sets where there are many variables. To create a heat map, data is plotted on a graph with two ...

A common fee structure is “2 and 20”, which reflects a 2% management fee and a 20% incentive fee.

Hedge funds can be classified according to the strategies that the fund manager employs.   According to Hedge Fund Research, there are four main classifications of hedge fund strategies:  event-driven strategies, relative value strategies, macro strategies, and equity hedge strategies.

An aggressively managed portfolio of investments across asset classes and across regions.  It is likely leveraged, takes long and short positions, and often uses derivatives. See also: Hedge fund strategies, Hedge fund fee structure

A portfolio with no uncertainty about its value at some future date. This can be constructed by taking a position in the underlying asset, and taking the opposite position in the derivative at the same time. e.g. Purchase an asset at spot price of $100, and simultaneously short a forward of the asset at $103. Investor pockets 3% return on ...

Financial assets (e.g. stocks and bonds, derivatives, loans, and receivable) acquired with the intent to be held to maturity. They are recorded in the balance sheet at cost or amortised cost. Compare: Available-for-sale securities, Trading securities

A tendency of investors to act in concert on the same side of the market.  Often, such investors act not on private analysis, but mimick the investment actions of other investors.  Herding can be a possible explanation of under-reaction and overreaction in financial markets.  Herding is clustered trading that may or may not be based on information. Some investors simply ...

LEVEL II Heteroskedasticity refers to the situation where the variance of the error term in a statistical model is not constant across all values of the predictor variables. This can lead to inaccurate results and invalid conclusions in the model. There are two types of heteroskedasticity: unconditional and conditional. Unconditional heteroskedasticity occurs when the variance of the error term is ...

A trade visibility execution instruction. Investors that have a large amount to trade and do not want to reveal their intentions prefer hidden orders, for which only the broker or exchange knows the trade size. See also: Iceberg order

LEVEL II Leverage measures how far an observation is from the average value of the independent variable. High leverage observations are those that are far away from the average and have a large effect on the regression line. For a particular independent variable, leverage of a particular data point measures the distance between its value and the mean value of ...

The highest value, net of fees, that a fund has reached in history. This is a feature which ensures that investors will not be charged incentive fees twice on the same gains in their portfolio values. This is achieved by limiting the incentive fees to apply to the extent that the current value of an investor’s account is above the ...

A belief perseverance bias in which people have the tendency to believe that past events were in fact quite predictable. This stems from the psychology that people tend to remember what they predicted correctly, than what they predicted wrongly. Hindsight bias can lead to overconfidence in market participants, causing them to take more risk. This is associated with overconfidence bias.

Using historical records to simulate the behaviour of some random variable. Compare: Monte Carlo simulation

One or two business days after Ex-dividend date is the holder-of-record date.  This is the date that all shareholders listed on the company’s books are recorded down for  receiving the upcoming dividend.  The reason for this gap is because trades on a stock exchange typically takes 1 to 2 business days to settle.   See also: Declaration date, Ex-dividend date, ...

The return that an investor earns during a specified holding period, including cash flows like dividends. HPR = (Ending value + CFin) / Beginning value – 1 Compare: MWRR, TWRR

A manifestation of availability bias where investors invest heavily in their domestic companies in a global portfolio. Such home bias may result from a belief that they have better access to information or simply an emotional desire to invest in companies “closer to home.” This goes agains rationality, which suggests greater diversification to reduce portfolio risk.

Used to analyse trends over time, all values in each row are expressed as a ratio against the first item, which is the first-year value.

The rate of return that must be met before the incentive fee can be paid out. A hurdle rate can be set either as an absolute percentage, or a rate relative to a benchmark, like the LIBOR rate. A hurdle rate can be either specified as a hard hurdle, or a soft hurdle. Hard hurdle: incentive fees are earned only ...

Inflation that accelerates out of control is referred to as hyperinflation, which can destroy a country’s monetary system and bring about social and political upheavals.