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Definition of Backwardation
A market condition in which futures prices are lower in the distant delivery months than in
Holds that the futures price will be bid down to a level below the expected
a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock.
Part of the return that is not due to systematic influences (market wide influences). In
The analysis of principal-agent relationships, wherein one person, an agent, acts on behalf of
An alternative model to the capital asset pricing model developed by
Security prices sometimes move wildly above their true values.
Sum of the differences between the expected return on a stock and the
A biased expectations theory that asserts that the implied forward
A form of the pure expectations theory which suggests that the returns on bonds
A distribution where the logarithm of the variable follows a normal distribution.
A biased expectations theory that asserts that the
Principles underlying the analysis and evaluation of rational portfolio choices
The manner in which retirement benefits are paid out.
Related: standardized value
A probability distribution for a continuous random variable that is forms a
A customized benchmark that includes all the securities from which a manager normally
Normal random variable
A random variable that has a normal probability distribution.
The practice of making a charge in the income account equivalent to the tax savings
Preferred habitat theory
A biased expectations theory that believes the term structure reflects the
Pure expectations theory
A theory that asserts that the forward rates exclusively represent the expected
Standardized normal distribution
A normal distribution with a mean of 0 and a standard deviation of 1.
Static theory of capital structure
theory that the firm's capital structure is determined by a trade-off of the
net cost of normal spoilage
the cost of spoiled work less the estimated disposal value of that work
the long-run (5–10 years) average production
normal cost system
a valuation method that uses actual
an expected decline in units during the production process
spoilage that has been planned or foreseen; is a product cost
theory of constraints (TOC)
a method of analyzing the bottlenecks
Normal (bell-shaped) distribution
In statistics, a theoretical frequency
Spoilage arising from the production process that exceeds the normal
The amount of spoilage that naturally arises as part of a production
expectations theory of exchange rates
theory that expected spot exchange rate equals the forward rate.
pecking order theory
Firms prefer to issue debt rather than equity if internal finance is insufficient.
random walk theory
Security prices change randomly, with no predictable trends or patterns.
Debt levels are chosen to balance interest tax shields against the costs of financial distress.
Quantity Theory of Money
theory that velocity is constant, and so a change in money supply will change nominal income by the same percentage. Formalized by the equation Mv = PQ.
Real Business Cycle Theory
Belief that business cycles arise from real shocks to the economy, such as technology advances and natural resource discoveries, and have little to do with monetary policy.
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