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Index arbitrage |
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Definition of Index arbitrageIndex arbitrageAn investment/trading strategy that exploits divergences between actual and theoretical
Related Terms:ArbitrageThe simultaneous buying and selling of a security at two different prices in two different markets, Arbitrage Pricing Theory (APT)An alternative model to the capital asset pricing model developed by Arbitrage-free option-pricing modelsYield curve option-pricing models. ArbitrageursPeople who search for and exploit arbitrage opportunities. Arms indexAlso known as a trading index (TRIN)= (number of advancing issues)/ (number of declining Bond indexingDesigning a portfolio so that its performance will match the performance of some bond index. Buying the indexPurchasing the stocks in the S&P 500 in the same proportion as the index to achieve the Consumer Price Index (CPI)The CPI, as it is called, measures the prices of consumer goods and services and is a Covered interest arbitrageA portfolio manager invests dollars in an instrument denominated in a foreign Currency arbitrageTaking advantage of divergences in exchange rates in different money markets by EAFE indexThe European, Australian, and Far East stock index, computed by Morgan Stanley. Enhanced indexingAlso called indexing plus, an indexing strategy whose objective is to exceed or replicate Index and Option Market (IOM)A division of the CME established in 1982 for trading stock index Index fundInvestment fund designed to match the returns on a stockmarket index. Index modelA model of stock returns using a market index such as the S&P 500 to represent common or Index optionA call or put option based on a stock market index. Index warrantA stock index option issued by either a corporate or sovereign entity as part of a security Indexed bondBond whose payments are linked to an index, e.g. the consumer price index. IndexingA passive instrument strategy consisting of the construction of a portfolio of stocks designed to Jensen indexAn index that uses the capital asset pricing model to determine whether a money manager Market value-weighted indexAn index of a group of securities computed by calculating a weighted average Optimization approach to indexingAn approach to indexing which seeks to Optimize some objective, such Profitability indexThe present value of the future cash flows divided by the initial investment. Also called Pure index fundA portfolio that is managed so as to perfectly replicate the performance of the market portfolio. Risk arbitrageSpeculation on perceived mispriced securities, usually in connection with merger and Risk controlled arbitrageA self-funding, self-hedged series of transactions that generally utilize mortgage Risk indexesCategories of risk used to calculate fundamental beta, including (1) market variability, (2) Riskless arbitrageThe simultaneous purchase and sale of the same asset to yield a profit. Single index modelA model of stock returns that decomposes influences on returns into a systematic factor, Single-index modelRelated: market model Stock index optionAn option in which the underlying is a common stock index. Stratified equity indexingA method of constructing a replicating portfolio in which the stocks in the index Stratified sampling approach to indexingAn approach in which the index is divided into cells, each Stratified sampling bond indexingA method of bond indexing that divides the index into cells, each cell Strike indexFor a stock index option, the index value at which the buyer of the option can buy or sell the Structured arbitrage transactionA self-funding, self-hedged series of transactions that usually utilize Treynor IndexA measure of the excess return per unit of risk, where excess return is defined as the Triangular arbitrageStriking offsetting deals among three markets simultaneously to obtain an arbitrage profit. Profitability indexSee cash value added. Profitability IndexA method for determining the profitability of an investment. It is present value indexsee profitability index profitability index (Pl)a ratio that compares the present value of net cash flows to the present value of the net investment ArbitrageThe purchase of securities on one market for immediate resale on market indexMeasure of the investment performance of the overall market. profitability indexRatio of net present value to initial investment. Standard & Poorâ€™s Composite Indexindex of the investment performance of a portfolio of 500 large stocks. Also called the ArbitrageTransactions designed to make a sure profit from inconsistent prices. Consumer Price Index (CPI)An index calculated by tracking the cost of a typical bundle of consumer goods and services over time. It is commonly used to measure inflation. IndexA series of numbers measuring percentage changes over time from a base period. The index number for the base period is by convention set equal to 100. Price IndexA measure of the price level calculated by comparing the cost of a bundle of goods and services in a given year with its cost in a base year. See also index. indexAn index is a statistical measure of a market based on the performance of a sample of securities in that market. For example, the S&P/TSX Composite index reflects the performance of the most actively traded stocks on The Toronto Stock Exchange. index fundsMutual funds that aim to track the performance of a specific stock or bond index. This process is also referred to as indexing and passive management. Index Portfolio Rebalancing Service (IPRS)index Portfolio Rebalancing Service (IPRS) is a comprehensive investment service that can help increase potential returns while reducing volatility. Several portfolios are available, each with its own strategic balance of index Funds. IPRS maintains your personal asset allocation by monitoring and rebalancing your portfolio semi-annually. IndexationThe adjustment of benefits to compensate for the effects of inflation.
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