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Definition of Self-selection

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Self-selection

Consequence of a contract that induces only one group (e.g. low risk individuals) to participate.



Related Terms:

Adverse selection

A situation in which market participation is a negative signal.


Country selection

A type of active international management that measures the contribution to performance
attributable to investing in the better-performing stock markets of the world.


Currency selection

Asset allocation in which the investor chooses among investments denominated in
different currencies.


Exclusionary self-tender

The firm makes a tender offer for a given amount of its own stock while excluding
targeted stockholders.


Security selection decision

Choosing the particular securities to include in a portfolio.



Self-Employment Contributions Act (SECA)

A federal Act requiring self-employed business owners to pay the same total tax rates for Social Security and
Medicare taxes that are split between employees and employers under the Federal Insurance Contributions Act.


Self-liquidating loan

Loan to finance current assets, The sale of the current assets provides the cash to repay
the loan.


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Stock selection

An active portfolio management technique that focuses on advantageous selection of
particular stocks rather than on broad asset allocation choices.


Country beta

Covariance of a national economy's rate of return and the rate of return the world economy
divided by the variance of the world economy.


Country financial risk

The ability of the national economy to generate enough foreign exchange to meet
payments of interest and principal on its foreign debt.


Country risk General

Level of political and economic uncertainty in a country affecting the value of loans or
investments in that country.


Single country fund

A mutual fund that invests in individual countries outside the United States.


Abusive Earnings Management

The use of various forms of gimmickry to distort a company's true financial performance in order to achieve a desired result.


Abusive Earnings Management

A characterization used by the Securities and Exchange
Commission to designate earnings management that results in an intentional and material misrepresentation
of results.


Acquisition of stock

A merger or consolidation in which an acquirer purchases the acquiree's stock.


Active

A market in which there is much trading.


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Active portfolio strategy

A strategy that uses available information and forecasting techniques to seek a
better performance than a portfolio that is simply diversified broadly. Related: passive portfolio strategy


activity-based management (ABM)

a discipline that focuses on the activities incurred during the production/performance process as the way to improve the value received
by a customer and the resulting profit achieved by providing
this value



Adjustable rate preferred stock (ARPS)

Publicly traded issues that may be collateralized by mortgages and MBSs.


Adjusted Cash Flow Provided by Continuing Operations

Cash flow provided by operating
activities adjusted to provide a more recurring, sustainable measure. Adjustments to reported cash
provided by operating activities are made to remove such nonrecurring cash items as: the operating
component of discontinued operations, income taxes on items classified as investing or financing activities, income tax benefits from nonqualified employee stock options, the cash effects of purchases and sales of trading securities for nonfinancial firms, capitalized expenditures, and other nonrecurring cash inflows and outflows.


All or none

Requirement that none of an order be executed unless all of it can be executed at the specified price.


All-or-none underwriting

An arrangement whereby a security issue is canceled if the underwriter is unable
to re-sell the entire issue.


Allowance for bad debts

An offset to the accounts receivable balance, against which
bad debts are charged. The presence of this allowance allows one to avoid severe
changes in the period-to-period bad debt expense by expensing a steady amount to
the allowance account in every period, rather than writing off large bad debts to
expense on an infrequent basis.


Allowance for doubtful accounts

A contra account related to accounts receivable that represents the amounts that the company expects will not be collected.


Allowance for Doubtful Accounts

An estimate of the uncollectible portion of accounts receivable
that is subtracted from the gross amount of accounts receivable to arrive at the estimated collectible
amount.


Allowance method

A method of adjusting accounts receivable to the amount that is expected to be collected based on company experience.


American Stock Exchange (AMEX)

The second-largest stock exchange in the United States. It trades
mostly in small-to medium-sized companies.


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Asset/liability management

Also called surplus management, the task of managing funds of a financial
institution to accomplish the two goals of a financial institution:
1) to earn an adequate return on funds invested, and
2) to maintain a comfortable surplus of assets beyond liabilities.



Asset-specific Risk

The amount of total risk that can be eliminated by diversification by
creating a portfolio. Also known as company-specific risk or
unsystematic risk.


At-the-money

An option is at-the-money if the strike price of the option is equal to the market price of the
underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.


Auction markets

markets in which the prevailing price is determined through the free interaction of
prospective buyers and sellers, as on the floor of the stock exchange.


Auction rate preferred stock (ARPS)

Floating rate preferred stock, the dividend on which is adjusted every
seven weeks through a Dutch auction.


Average (across-day) measures

An estimation of price that uses the average or representative price of a
large number of trades.


Bank for International Settlements (BIS)

An international bank headquartered in Basel, Switzerland, which
serves as a forum for monetary cooperation among several European central banks, the Bank of Japan, and the
U.S. Federal Reserve System. Founded in 1930 to handle the German payment of world War I reparations, it
now monitors and collects data on international banking activity and promulgates rules concerning
international bank regulation.


Bankruptcy risk

The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.


BARRA's performance analysis (PERFAN)

A method developed by BARRA, a consulting firm in
Berkeley, Calif. It is commonly used by institutional investors applying performance attribution analysis to
evaluate their money managers' performances.


Basis risk

The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
price risk.


Bear market

Any market in which prices are in a declining trend.


bear market

A market in which stock or bond prices are generally
falling.


Bear Market

A prolonged period of falling stock market prices.


Beta equation (Stocks)

The beta of a stock is determined as follows:
[(n) (sum of (xy)) ]-[(sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[(sum of x) (sum of x)]
where: n = # of observations (24-60 months)
x = rate of return for the S&P 500 Index
y = rate of return for the stock


Beta risk

risk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio.


Black market

An illegal market.


Blow-off top

A steep and rapid increase in price followed by a steep and rapid drop. This is an indicator seen
in charts and used in technical analysis of stock price and market trends.


BOOK VALUE OF COMMON STOCK

The theoretical amount per share that each stockholder would receive if a company’s assets were sold on the balance sheet’s date. Book value equals:
(stockholders’ equity) / (Common stock shares outstanding)


Bottom-up equity management style

A management style that de-emphasizes the significance of economic
and market cycles, focusing instead on the analysis of individual stocks.


Brokered market

A market where an intermediary offers search services to buyers and sellers.


Bull market

Any market in which prices are in an upward trend.


bull market

A market in which stock or bond prices are generally rising.


Bull Market

A prolonged period of rising stock market prices.


Bulldog market

The foreign market in the United Kingdom.


Bullet contract

A guaranteed investment contract purchased with a single (one-shot) premium. Related:
Window contract.


Business risk

The risk that the cash flow of an issuer will be impaired because of adverse economic
conditions, making it difficult for the issuer to meet its operating expenses.


Call money rate

Also called the broker loan rate , the interest rate that banks charge brokers to finance
margin loans to investors. The broker charges the investor the call money rate plus a service charge.


Call risk

The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.


Capital Consumption Allowance

See depreciation.


Capital Cost Allowance (CCA)

The annual depreciation expense allowed by the Canadian Income Tax Act.


Capital Flows

Purchase by foreigners of our assets (capital inflows) or our purchase of foreign assets (capital outflows).


Capital market

The market for trading long-term debt instruments (those that mature in more than one year).


Capital market

The market in which investors buy and sell shares of companies, normally associated with a stock Exchange.


Capital Market

A market that specializes in trading long-term, relatively high risk
securities


Capital Market

The market in which savings are made available to those needing funds to undertake investment projects. A financial market in which longer-term (maturity greater than one year) bonds and stocks are traded.


Capital market efficiency

Reflects the relative amount of wealth wasted in making transactions. An efficient
capital market allows the transfer of assets with little wealth loss. See: efficient market hypothesis.


Capital market imperfections view

The view that issuing debt is generally valuable but that the firm's
optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net
corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of
asymmetric information, asymmetric taxes, and transaction costs.


Capital market line (CML)

The line defined by every combination of the risk-free asset and the market portfolio.


capital markets

markets for long-term financing.


capital stock

Ownership shares issued by a business corporation. A business
corporation may issue more than one class of capital stock shares.
one class may give voting privileges in the election of the directors of the
corporation while the other class does not. one class (called preferred
stock) may entitle a certain amount of dividends per share before cash
dividends can be paid on the other class (usually called common stock).
stock shares may have a minimum value at which they have to be issued
(called the par value), or stock shares can be issued for any amount
(called no-par stock). stock shares may be traded on public markets such
as the New York stock Exchange or over the Nasdaq network. There are
about 10,000 stocks traded on public markets (although estimates vary
on this number). In this regard, I find it very interesting that there are
more than 8,000 mutual funds that invest in stocks.


Capital Stock

The total amount of plant, equipment, and other physical capital.


Cash flow

In investments, it represents earnings before depreciation , amortization and non-cash charges.
Sometimes called cash earnings. Cash flow from operations (called funds from operations ) by real estate and
other investment trusts is important because it indicates the ability to pay dividends.


cash flow

An obvious but at the same time elusive term that refers to cash
inflows and outflows during a period. But the specific sources and uses
of cash flows are not clear in this general term. The statement of cash
flows, which is one of the three primary financial statements of a business,
classifies cash flows into three types: those from operating activities
(sales and expenses, or profit-making operations), those from
investing activities, and those from financing activities. Sometimes the
term cash flow is used as shorthand for cash flow from profit (i.e., cash
flow from operating activities).


cash flow

the receipt or disbursement of cash; when related
to capital budgeting, cash flows arise from the purchase,
operation, and disposition of a capital asset


Cash flow

Cash received and paid over time.


Cash Flow

In investments, NET INCOME plus DEPRECIATION and other noncash charges. In this sense, it is synonymous with CASH EARNINGS. Investors focus on cash flow from operations because of their concern with a firm's ability to pay dividends.


Cash flow after interest and taxes

Net income plus depreciation.


Cash-flow break-even point

The point below which the firm will need either to obtain additional financing
or to liquidate some of its assets to meet its fixed costs.


Cash flow coverage ratio

The number of times that financial obligations (for interest, principal payments,
preferred stock dividends, and rental payments) are covered by earnings before interest, taxes, rental
payments, and depreciation.


Cash Flow Forecast

An estimate of the timing and amount of a company's inflows and outflows of money measured over a specific period of time typically monthly for one to two years then annually for an additional one to three years.


cash flow from operating activities, or cash flow from profit

This equals the cash inflow from sales during the period minus the cash
outflow for expenses during the period. Keep in mind that to measure
net income, generally accepted accounting principles require the use of
accrual-basis accounting. Starting with the amount of accrual-basis net
income, adjustments are made for changes in accounts receivable,
inventories, prepaid expenses, and operating liabilities—and depreciation
expense is added back (as well as any other noncash outlay
expense)—to arrive at cash flow from profit, which is formally labeled
cash flow from operating activities in the externally reported statement
of cash flows.


Cash flow from operations

A firm's net cash inflow resulting directly from its regular operations
(disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing
securities), calculated as the sum of net income plus non-cash expenses that were deducted in calculating net
income.


Cash flow matching

Also called dedicating a portfolio, this is an alternative to multiperiod immunization in
which the manager matches the maturity of each element in the liability stream, working backward from the
last liability to assure all required cash flows.


Cash flow per common share

Cash flow from operations minus preferred stock dividends, divided by the
number of common shares outstanding.


Cash Flow Provided by Operating Activities

With some exceptions, the cash effects of transactions
that enter into the determination of net income, such as cash receipts from sales of goods
and services and cash payments to suppliers and employees for acquisitions of inventory and
expenses.


Cash Flow Provided or Used from Financing Activities

Cash receipts and payments involving
liability and stockholders' equity items, including obtaining cash from creditors and repaying
the amounts borrowed and obtaining capital from owners and providing them with a return on,
and a return of, their investments.


Cash Flow Provided or Used from Investing Activities

Cash receipts and payments involving
long-term assets, including making and collecting loans and acquiring and disposing of
investments and productive long-lived assets.


CASH-FLOW STATEMENT

A statement that shows where a company’s cash came from and where it went for a period of time, such as a year.


Cash Flow statement

A financial report that shows the movement in cash for a business during an accounting period.


Cash flow time-line

Line depicting the operating activities and cash flows for a firm over a particular period.


Cash Flow–to–Income Ratio (CFI)

Adjusted cash flow provided by continuing operations
divided by adjusted income from continuing operations.


CASH FLOWS FROM FINANCING ACTIVITIES

A section on the cash-flow statement that shows how much cash a company raised by selling stocks or bonds this year and how much was paid out for cash dividends and other finance-related obligations.


CASH FLOWS FROM INVESTING ACTIVITIES

A section on the cashflow statement that shows how much cash came in and went out because of various investing activities like purchasing machinery.


CASH FLOWS FROM OPERATIONS

A section on the cash-flow stockholders’ equity statement that shows how much cash came into a company and how much went out during the normal course of business.


Cash management bill

Very short maturity bills that the Treasury occasionally sells because its cash
balances are down and it needs money for a few days.


Cash markets

Also called spot markets, these are markets that involve the immediate delivery of a security
or instrument.
Related: derivative markets.


Cash settlement contracts

Futures contracts, such as stock index futures, that settle for cash, not involving
the delivery of the underlying.


Certified Management Accountant (CMA)

a professional designation in the area of management accounting that
recognizes the successful completion of an examination,
acceptable work experience, and continuing education requirements


Circular Flow

Income payments to factors of production are spent to buy output. The receipts from these sales are used to pay factors of production, creating a circular flow of income.


Commercial risk

The risk that a foreign debtor will be unable to pay its debts because of business events,
such as bankruptcy.


Committee, AIMR Performance Presentation Standards Implementation Committee

The Association for Investment management and Research (AIMR)'s performance Presentation Standards Implementation
Committee is charged with the responsibility to interpret, revise and update the AIMR performance
Presentation Standards (AIMR-PPS(TM)) for portfolio performance presentations.


Common market

An agreement between two or more countries that permits the free movement of capital
and labor as well as goods and services.


Common stock

These are securities that represent equity ownership in a company. Common shares let an
investor vote on such matters as the election of directors. They also give the holder a share in a company's
profits via dividend payments or the capital appreciation of the security.


Common stock

Shares of ownership sold to the public.


Common Stock

A financial security that represents an ownership claim on the
assets and earnings of a company. This claim is valid after the
claims of the debt providers and preferred stockholders have been
satisfied.


common stock

Ownership shares in a publicly held corporation.


Common Stock

That part of the capital stock of a corporation that carries voting rights and represents
the last claim on assets and dividends.


Common stock equivalent

A convertible security that is traded like an equity issue because the optioned
common stock is trading high.


Common stock market

The market for trading equities, not including preferred stock.


Common stock/other equity

Value of outstanding common shares at par, plus accumulated retained
earnings. Also called shareholders' equity.


Common stock ratios

Ratios that are designed to measure the relative claims of stockholders to earnings
(cash flow per share), and equity (book value per share) of a firm.


Company-specific risk

Related: Unsystematic risk


Companyspecific Risk

See asset-specific risk


Complete capital market

A market in which there is a distinct marketable security for each and every
possible outcome.


Completed-Contract Method

A contract accounting method that recognizes contract revenue
only when the contract is completed. All contract costs are accumulated and reported as expense
when the contract revenue is recognized.



 

 

 

 

 

 

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