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Definition of Random walk
Theory that stock price changes from day to day are at random; the changes are independent
Security prices change randomly, with no predictable trends or patterns.
A form of pricing efficiency where the price of the security reflects the past price and
A random value that can take any fractional value within specified ranges, as
A random variable that can take only a certain specified set of discrete possible
A random variable that has a normal probability distribution.
A function that assigns a real number to each and every possible outcome of a random experiment.
A strategy of introducing into the decision-making process a random element that is
The technique of storing incoming inventory in any
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
Information that is known to some people but not to other people.
A method developed by BARRA, a consulting firm in
Security prices sometimes move wildly above their true values.
Reflects the relative amount of wealth wasted in making transactions. An efficient
The Association for Investment Management and Research (AIMR)'s Performance Presentation Standards Implementation
Reflects the amount of wasted energy.
Expected value of perfect information
The expected value if the future uncertain outcomes could be known
Related: pricing efficiency.
Flat benefit formula
Method used to determine a participant's benefits in a defined benefit plan by
A method of selling a new issue of common stock in which the SEC declares the registration
A situation involving information that is known to some, but not all, participants.
Information Coefficient (IC)
The correlation between predicted and actual stock returns, sometimes used to
Transaction costs that include the assessment of the investment merits of a financial asset.
Organizations that furnish investment and other types of information, such as
The rise in the stock price following the dividend signal.
The speed and accuracy with which prices reflect new information.
Trades that are the result of either a reallocation of wealth or an implementation of an
Trades in which an investor believes he or she possesses pertinent
Relevant information about a company that has not yet been made public. It is illegal for
Liquidity theory of the term structure
A biased expectations theory that asserts that the implied forward
Local expectations theory
A form of the pure expectations theory which suggests that the returns on bonds
Market segmentation theory or preferred habitat theory
A biased expectations theory that asserts that the
Marketplace price efficiency
The degree to which the prices of assets reflect the available marketplace
Modern portfolio theory
Principles underlying the analysis and evaluation of rational portfolio choices
Normal annuity form
The manner in which retirement benefits are paid out.
Normal backwardation theory
Holds that the futures price will be bid down to a level below the expected
When a security is expected to appreciate at a rate faster than the overall market.
Performance attribution analysis
The decomposition of a money manager's performance results to explain
The evaluation of a manager's performance which involves, first, determining
The calculation of the return realized by a money manager over some time interval.
Shares of stock given to managers on the basis of performance as measured by earnings
Preferred habitat theory
A biased expectations theory that believes the term structure reflects the
Also called external efficiency, a market characteristic where prices at all times fully
Pro forma capital structure analysis
A method of analyzing the impact of alternative capital structure
Pro forma financial statements
Financial statements as adjusted to reflect a projected or planned transaction.
Pro forma statement
A financial statement showing the forecast or projected operating results and balance
Pure expectations theory
A theory that asserts that the forward rates exclusively represent the expected
Semi-strong form efficiency
A form of pricing efficiency where the price of the security fully reflects all
Static theory of capital structure
theory that the firm's capital structure is determined by a trade-off of the
Pricing efficiency, where the price of a, security reflects all information, whether or
Tax Reform Act of 1986
A 1986 law involving a major overhaul of the U.S. tax code.
When a security is expected to appreciate at a slower rate than the overall market.
Unit benefit formula
Method used to determine a participant's benefits in a defined benefit plan by
a measure of the degree to which tasks were performed
bits of knowledge or fact that have been carefully
labor efficiency variance
the number of hours actually worked minus the standard hours allowed for the production
management information system (MIS)
a structure of interrelated elements that collects, organizes, and communicates
manufacturing cycle efficiency (MCE)
a ratio resulting from dividing the actual production time by total lead time;
material requisition form
a source document that indicates
an entity’s legal nature (for example,
overhead efficiency variance
the difference between total budgeted overhead at actual hours and total budgeted
the process of determining the degree
performance management system
a system reflecting the entire package of decisions regarding performance measurement and evaluation
theory of constraints (TOC)
a method of analyzing the bottlenecks
variable overhead efficiency variance
the difference between budgeted variable overhead based on actual input activity and variable overhead applied to production
Labor efficiency variance
The difference between the amount of time that was budgeted
Pro forma (Proforma)
A set of financial statements that incorporates some assumptions, usually
expectations theory of exchange rates
theory that expected spot exchange rate equals the forward rate.
information content of dividends
Dividend increases send good news about cash flow and earnings. Dividend cuts send bad news.
pecking order theory
Firms prefer to issue debt rather than equity if internal finance is insufficient.
Projected or forecasted financial statements.
Market prices reflect all publicly available information.
Market prices rapidly reflect all information that could in principle be used to determine true value.
Debt levels are chosen to balance interest tax shields against the costs of financial distress.
The ability to produce the things most wanted at the least cost.
Wage that maximizes profits.
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.
A form used by businesses to report to the government payments
A form used by employees to report to an employer the amount of
The standard form used for notifying a company to garnish an employee’s
The form used by employers to report tip income by their employees
A form used to report federal unemployment tax remittances and liabilities.
A shortened version of the form 940.
The Employment Eligibility Verification form, which must be filled
Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA)
A federal Act shielding employers from liability if they have made
Immigration Reform and Control Act of 1986
A federal Act requiring all employers having at least four employees to verify the identity and employment
Uniform Interstate Family Support Act
A federal Act specifying which jurisdiction
Uniformed Services Employment and Reemployment Rights Act of 1994
A federal act that minimizes the impact on people serving in the Armed Forces
A form used to report gross pay and tax deductions for each employee
A form issued to a company’s suppliers, requesting that they identify
A format for the operating section of the cash-flow statement that reports actual cash receipts and cash disbursements from operating activities.
A format for the operating section of the cash-flow statement that
Reported net income with selected nonrecurring items of revenue or gain
Any inventory item that does not match its original design
Medical Information Bureau
This organization was established in 1902. The Medical Information Bureau (M.I.B.) is a non-profit association of life insurance companies. Its purpose is to detect and deter fraud by providing warnings called, alerts, to member companies. For example, if an insurance applicant advised one insurance company of a heart attack and then applied to another insurance company omitting this history, codes, reported by the first insurance company, indicating a heart attack would alert the second insurance company to the undisclosed history. It is a rarity, however, that the alert is the only notice of a specific medical impairement as most applicants completely disclose their history.
Formalized Line of Credit
A contractual commitment to make loans to a particular borrower up to a specified maximum during a specified period, usually one year.
Future-Oriented Financial Information
Information about prospective results of operations, financial position and/or changes in financial position, based on assumptions about future economic conditions and courses of action. Future-oriented financial information is presented as either a forecast or a projection.
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