Glossary

Often used in the case where the criteria for choosing the z-statistic as the test statistic is not met.

The decision to deliberately deviate from the strategic asset allocation in an attempt to add value based on forecasts of the near-term relative performance of asset classes. Compare: Strategic asset allocation

Taxes collected by the government on imported goods.  See also: Quotas, Voluntary Export Restraints, Export Subsidies

The amount at which an asset or liability is valued for tax purposes. The amount deductible for tax purposes in future periods.

A taxable loss in the current period that may be used to reduce future taxable income. A form of DTA.

The tax benefit from interest paid on debt being tax deductible from income. Tax shield = Marginal tax rate x Value of debt

Under tax reporting, income subject to tax by tax authorities. Compare: Accounting profit

Under tax reporting, actual tax liability for the current period.

Use of price and volume data to aid in investment decisions. Compare: Fundamental analysis

Differences between tax reporting and financial reporting that will likely be reversed in the future. Such differences arise due to timing differences in the recognition of revenue and expenses. These result in DTA or DTL in the balance sheet to reconcile such timing differences. Compare: Permanent differences

The ratio of an index of the prices of a country’s exports to an index of the prices of its imports, expressed relative to a base value of 100. For instance, if a country’s exports price index is currently 165, and the imports price index is 150, the terms of trade will be 110.  This means that the prices of ...

Used to estimate reliability factor when calculating confidence intervals and for hypothesis tests. Related: z-statistic, t-statistic

The income stream from timberland has historically been not highly correlated with other asset classes.  This could be due to the characteristic that timber can be grown and easily stored by not harvesting.  This gives the owners the flexibility of harvesting more trees when timber prices are up, and delaying harvests when prices are down. Compare: Farmland

Bias that can occur if the time period over which the data represents is too long or too short. A short time period may reflect a phenomenon that may be specific to only that time period. The conclusions drawn may not be reflective of the longer term trend. A long time period, while being more aligned to the longer term ...

A method of redistributing prepayment risk where an ABS/MBS is segregated into different classes/tranches with different expected maturities. Compare: Credit tranching

The speculative value of an option contract. In general, the longer the time to expiration, the higher the time value.

The idea that money that is available now is worth more than the same amount in the future, due to its potential earning capacity. TVM problems are solved based on 5 parameters: PV: present value FV: future value PMT: payment r: interest rate / discount rate N: number of periods

Compare a company’s performance as it progresses over time. Can be useful in observing trends over time.

The compound rate of growth in a portfolio during a stated measurement period. Can be a better measure of portfolio manager performance as it is not sensitive to the timing and amount of inflows/outflows to the portfolio. Compare: MWRR, HPR

Electronic proof of ownership of physical assets, which could be maintained on a distributed ledger. For example, such a ledger could potentially replace the paper real estate deeds currently filed at government offices.

Measures the efficiency of a firm in generating revenue using its total assets. Total asset turnover = Revenue / Avg Total Assets See also: Fixed asset turnover, Working capital turnover

Total comprehensive income = Net income + OCI

Total debt-to-equity ratio = Total debt / Total equity

Used to explain the unconditional probability of an event in terms of probabilities of the event conditional on mutually exclusive and exhaustive scenarios. P(B) = P(BA) + P(BAC)

A measure of the return of a total return index. It measures both the percentage change in price of the securities in the index, plus returns due to interim cash flows (e.g. dividends). Compare: Price return

A type of stock index which take into account both the price and interim cash flows of constituent stocks in its calculation. A total return index will be higher than its corresponding price index.

Financial assets (e.g. stocks and bonds) acquired with the intent to profit over the near term. They are recorded in the balance sheet at fair value through profit and loss (FVPL). Compare: Held-to-maturity securities, Available-for-sale securities

Inflation-linked bonds issued by the US Treasury. The index used is the Consumer Price Index for All Urban Consumers (CPI-U).

Stock that has been reacquired by the issuing firm but not yet retired.  It has no voting rights and does not receive dividends.

A tree map is a graphical representation of data that uses nested rectangles to illustrate the hierarchy of the data. It is often used to display hierarchical data structures, such as file systems or organizational charts, in a more intuitive and visual way. To create a tree map, the data is organised into a hierarchy, with the highest level representing ...

The Treynor measure is the equivalent of the Sharpe ratio based on systematic risk, so the returns are measured per unit systemic risk .  The Treynor measure is the slope of the straight line.   Compare: Sharpe ratio, M2, Jensen’s Alpha

LEVEL II Triangular arbitrage is a trading strategy that takes advantage of price differences in the foreign exchange market to generate a profit. It involves three currencies and three exchange rates. The basic idea is to convert one currency into another, and then back into the original currency, taking advantage of any discrepancies in the exchange rates along the way. ...

To calculate the trimmed mean from a box and whisker plot, you need to know the minimum, maximum, and median values of the data. Here is the process for calculating the trimmed mean: The trimmed mean is a measure of central tendency that is similar to the mean, but it is less sensitive to extreme values or outliers in the ...

A reversal pattern that is formed when the price forms three peaks at roughly the same price level. Used to predict a change from an uptrend to a downtrend.

The internal rate of return using the actual calendar including weekends and bank holidays. See also: Periodicity

A statistical test for differences between two parameters based on assumption of independent samples.

A test in which the null hypothesis is rejected in favour of the alternative hypothesis if the evidence indicates that the population parameter is either smaller or larger than a hypothesised value. Compare: One-tailed hypothesis test

Rejection of the null hypothesis when it is actually true. Commonly denoted as ⍺. Compare: Type II error

Failure to reject the null hypothesis when it is actually false. Commonly denoted as β. Compare: Type I error