| Active management | Attempts to achieve portfolio returns more than commensurate with risk, either by forecasting broad market trends or by identifying particular mispriced sectors of a market or securities in a market.
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| Agency problem | Conflicts of interest among stockholders, bondholders, and managers.
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| Asset allocation decision | Choosing among broad asset classes such as stocks versus bonds.
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| Bundling, unbundling | A trend allowing creation of securities either by combining primitive and derivative securities into one composite hybrid or by separating returns on an asset into classes.
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| Derivative security | See primitive security.
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| Equity | Ownership in a firm. Also, the net worth of a margin account.
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| Financial assets | Financial assets such as stocks and bonds are claims to the income generated by real assets or claims on income from the government.
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| Financial engineering | Creating and designing securities with custom-tailored characteristics.
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| Financial intermediary | An institution such as a bank, mutual fund, investment company, or insurance company that serves to connect the household and business sectors so households can invest and businesses can finance production.
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| Fixed-income security | A security such as a bond that pays a specified cash flow over a specific period.
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| Globalization | Tendency toward a worldwide investment environment, and the integration of national capital markets.
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| Investment | Commitment of current resources in the expectation of deriving greater resources in the future.
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| Investment bankers | Firms specializing in the sale of new securities to the public, typically by underwriting the issue.
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| Investment company | Firm managing funds for investors. An investment company may manage several mutual funds.
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| Pass-through security | Pools of loans (such as home mortgage loans) sold in one package. Owners of pass-throughs receive all principal and interest payments made by the borrowers.
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| Passive management | Buying a well-diversified portfolio to represent a broad-based market index without attempting to search out mispriced securities.
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| Primary market | New issues of securities are offered to the public here.
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| Real assets, financial assets | Real assets are land, buildings, and equipment that are used to produce goods and services. Financial assets are claims such as securities to the income generated by real assets.
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| Risk-return trade-off | If an investor is willing to take on risk, there is the reward of higher expected returns.
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| Secondary market | Already existing securities are bought and sold on the exchanges or in the OTC market.
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| Securitization | Pooling loans for various purposes into standardized securities backed by those loans, which can then be traded like any other security.
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| Security analysis | Determining correct value of a security in the marketplace.
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| Security selection decision | Choosing the particular securities to include in a portfolio.
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| Unbundling | See bundling.
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