Niveau: Universiteit Leerjaar: N.v.t.
Keyword (page) Definition (page)
1 affinity fraud (p. 796) Affinity fraud is the commission of fraud against people or entities with which the perpetrator of the fraud shares a common bond, such as race, ethnicity, or religious affiliation. (p. 796)
2 anchoring (p. 789) Anchoring may be viewed in this context as a tendency to rely too heavily on previous beliefs. (p. 789)
3 behavioral biases (p. 790) Behavioral biases are tendencies or patterns exhibited by humans that conflict with prescriptions based on rationality and empiricism. (p. 790)
4 behavioral finance (p. 789) Behavioral finance studies the potential impacts of cognitive, emotional, and social factors on financing decision-making. (p. 789)
5 confirmation bias (p. 789) Confirmation bias is the tendency to disproportionately interpret results that confirm a previously held opinion as being true. (p. 789)
6 crowded trade (p. 791) When large investors hold substantial positions in the same asset or similar assets, it is known as a crowded trade. (p. 791)
7 fraud (p. 792) Fraud is intentional deception typically for the purpose of financial gain. (p. 792)
8 painting the tape (p. 798) Placing transactions to record high or low prices on the transaction records of public markets is a fraudulent activity often termed painting the tape, in reference to the historical use of ticker tape to broadcast prices. (p. 798)
9 Ponzi scheme (p. 795) A Ponzi scheme is a fraudulent program that returns deposits to investors and identifies the returned capital as a distribution of profit in order to overstate the profitability of the enterprise and to attract additional and larger deposits. (p. 795)
10 restitution (p. 796) Restitution is the restoration of lost funds. (p. 796)
11 return on assets (ROA) (p. 788) Return on assets (ROA) is profit before financing costs (and taxes), expressed as a percentage of assets. ROE can be expressed as a function of ROA, leverage (L, which is defined here as the ratio of assets to equity), and interest costs on the financing (r): ROE = (ROA × L) − [r × (L − 1)] (p. 788)
12 return on equity (ROE) (p. 788) Return on equity (ROE) is profit after financing costs, expressed as a percentage of equity. (p. 788)
13 unwind hypothesis (p. 790) The unwind hypothesis suggests that hedge fund losses began with the forced liquidation of one or more large equity market-neutral portfolios, primarily to raise cash or reduce leverage. (p. 790)
14 window dressing (p. 797) Window dressing is a term used in the investment industry to denote a variety of legal and illegal strategies to improve the outward appearance of an investment vehicle. (p. 797)
15 actual investment strategy (p. 801) The actual investment strategy of a fund at a particular point in time is the investment strategy being implemented by the fund. (p. 801)
16 business activities (p. 806) Business activities include the indirect support of the investment activities of the fund, including all of the normal activities of running any similarly sized organization, such as human resources management, technology, infrastructure, and facility maintenance. (p. 806)
17 business risk (p. 806) Business risk is the added economic dispersion caused by unexpected performance of the business team and business activities. (p. 806)
18 custody (p. 811) Custody refers to the safekeeping of the cash and securities of a fund. (p. 811)
19 fund culture (p. 811) A fund culture is a generally shared set of priorities and values within the fund’s organization. (p. 811)
20 gaming (p. 808) Gaming refers to strategic behavior to gain benefits from circumventing the intention of the rules of a particular system. (p. 808)
21 investment activities (p. 805) Investment activities span the investment process, involving all aspects of determining and implementing investment decisions. (p. 805)
22 investment management governance process (p. 802) The investment process in discretionary cases centers on the investment management governance process, which is the explicit or implicit set of procedures through which investment decisions are made. (p. 802)
23 investment mandate (p. 801) An investment mandate is an explicit or implicit statement of the allowable and intended strategy, goals, and/or risks of an investment program. (p. 801)
24 investment process (p. 802) The investment process includes the methods a manager uses to formulate, execute, and monitor investment decisions, and spans the range of investment activities, from the design of the investment strategy, through the implementation of the ideas into decisions, and ultimately to the placing and execution of trading orders. (p. 802)
25 investment process risk (p. 803) Investment process risk is economic dispersion caused by imperfect application of the stated investment strategy by the investment team. (p. 803)
26 investment strategy (p. 801) A fund’s investment strategy refers to the sets of objectives, principles, techniques, and procedures used to construct and modify the fund’s portfolio. (p. 801)
27 market risk in the investment process (p. 803) In discussions of investment process, the market risk in the investment process describes any systematic or idiosyncratic dispersion in economic outcomes attributable to changes in market prices and rates. (p. 803)
28 operational activities (p. 806) Operational activities include the direct support of investment activities, often described as middle office and back office operations. (p. 806)
29 operational errors (p. 807) Operational errors are inadvertent mistakes made in the process of executing a fund’s investment strategy. (p. 807)
30 operational fraud (p. 808) Operational fraud from the perspective of an investor is any intentional, self-serving, deceptive behavior in the operational activities of a fund that is generally harmful to the investor. (p. 808)
31 operational risk (p. 806) A broad interpretation of operational risk is that it is any economic dispersion caused by investment, operational, or business activities. (p. 806)
32 permitted investment strategies (p. 801) The permitted investment strategies of a fund delineate the range of investment strategies that the fund’s managers have communicated and are mandated as allowable for the fund to implement. (p. 801)
33 position limit (p. 809) A position limit is a specific restriction on the size of the holdings of a particular security or combination of securities. (p. 809)
34 risk limits (p. 809) Risk limits are the maximum levels of measured risk that are allowed in a portfolio, in terms of both individual risks and aggregated risks. (p. 809)
35 rogue trader (p. 808) A rogue trader intentionally establishes substantial positions well outside the investment mandate. (p. 808)
36 slack variable (p. 814) A slack variable is the variable in an optimization problem that takes on whatever value is necessary to allow an optimum to be feasible but, while doing so, does not directly alter the value of the objective function. (p. 814)
37 stated investment strategy (p. 801) The stated investment strategy of a fund is the investment strategy that a diligent investor would expect the fund to pursue, based on a reasonable analysis of information made available by the fund. (p. 801)
38 style drift (p. 802) Style drift (or strategy drift) is the change through time of a fund’s investment strategy based on purposeful decisions by the fund manager in an attempt to improve risk-adjusted performance in light of changing market conditions. (p. 802)
39 synergistic risk effect (p. 806) A synergistic risk effect is the potential for the combination of two or more risks to have a greater total risk than the sum of the individual risks. (p. 806)
40 annual volatility (p. 832) Thus, annual volatility is only about 16 times larger than daily volatility based on 256 trading days per year and zero autocorrelation. (p. 832)
41 bias blind spot (p. 829) The bias blind spot is people’s tendency to underestimate the extent to which they possess biases. (p. 829)
42 chief risk officer (p. 838) The chief risk officer (CRO) oversees the fund manager’s program for identifying, measuring, monitoring, and managing risk. (p. 838)
43 daily volatility (p. 832) Annual volatility is only about 16 times larger than daily volatility based on 256 trading days per year and zero autocorrelation. (p. 832)
44 due diligence (p. 815) Due diligence is the process of performing a review of an investment with an appropriate level of competence, care, and thoroughness. (p. 815)
45 expectation bias (p. 831) Expectation bias is synonymous with confirmation bias and is a tendency to overweight those findings that most agree with one’s prior beliefs. (p. 831)
46 feeder fund (p. 820) A feeder fund is a legal structure through which investors have access to the investment performance of the master trust. (p. 820)
47 financial firewall (p. 838) A limited liability shield or financial firewall is a legal construct that prevents creditors from pursuing restitution from investors or other participants involved in an economic activity beyond the amount of capital that they have contributed. (p. 838)
48 fund style index (p. 825) A fund style index is a collection of fund managers operating with a similar strategy to the fund manager in question that can be used as a benchmark. (p. 825)
49 hard lockup period (p. 839) In a hard lockup period, withdrawals are contractually not allowed for the entire duration of the lockup period. (p. 839)
50 herd behavior (p. 829) Herd behavior is the extent to which people are overly eager to adopt beliefs that conform to those of their peers. (p. 829)
51 information filtering (p. 819) Information filtering is the fund manager’s ability to use data available to others but to be better able to glean tradable insights from it. (p. 819)
52 information gathering (p. 819) Information gathering indicates the ability of the manager to create access to information or to have access to better information than do other managers. (p. 819)
53 investment objective (p. 816) The investment objective of a fund specifies the goals, nature, and strategies of the fund’s investment program. (p. 816)
54 key personnel clause (p. 818) A key personnel clause is a provision that allows investors to withdraw their assets from the fund, immediately and without penalty, when the identified key personnel are no longer making investment decisions for the fund. (p. 818)
55 league table (p. 823) Common in many industries, a league table is a listing of organizations, generated by a research or media firm, that ranks organizations by size, volume, or other indicators of activity. (p. 823)
56 level 1 assets (p. 834) Level 1 assets are those assets that can be valued based on an unadjusted market price quote from an actively traded market of identical assets. (p. 834)
57 level 2 assets (p. 834) Level 2 assets are best valued based on nonactive market price quotes, active market price quotes for similar assets, or non-quoted values based on observable inputs that can be corroborated. (p. 834)
58 level 3 assets (p. 835) Level 3 assets must be valued substantially on the basis of unobservable inputs, critical assumptions, and/or imprecise valuation techniques. (p. 835)
59 limited liability shield (p. 838) A limited liability shield or financial firewall is a legal construct that prevents creditors from pursuing restitution from investors or other participants involved in an economic activity beyond the amount of capital that they have contributed. (p. 838)
60 lockup period (p. 839) A lockup period is a provision preventing, or providing financial disincentives for, redemption or withdrawal of an investor’s funds for a designated period, typically one to three years for hedge funds, and up to ten years or more for real estate and private equity funds. (p. 839)
61 master trust (p. 820) The master trust is the legal structure used to invest the assets of both onshore investors and offshore investors in a consistent if not identical manner, so that both funds share the benefit of the fund manager’s insights. (p. 820)
62 master-feeder structure (p. 820) Together, the master trust and feeder funds are referred to as a master-feeder structure. (p. 820)
63 N-sigma event (p. 836) An N-sigma event is an event that is N standard deviations from the mean. (p. 836)
64 omega-score (p. 842) The omega-score is a measure of future risk that is computed as a function of a fund’s age, size, past performance, volatility, and fee structure. (p. 842)
65 shorting volatility (p. 824) Shorting volatility is a strategy whereby a fund manager sells call or put options, especially out-of-the-money options, without an offsetting position. (p. 824)
66 side pocket arrangement (p. 821) In a side pocket arrangement, illiquid investments held by a hedge fund are segregated from the rest of the portfolio. (p. 821)
67 soft lockup period (p. 839) In a soft lockup period, investors may be allowed to withdraw capital from the fund before the expiration of the lockup period but only after the payment of a redemption fee, which is frequently 1% to 5% of the withdrawal amount. (p. 839)
68 trade allocation (p. 830) Trade allocation, in this context, refers to the process by which—and priorities with which—an attractive investment opportunity is distributed among the manager’s various funds and accounts. (p. 830)
69 actively managed portfolio (p. 855) An actively managed portfolio involves trading with the intent of generating improved performance. (p. 855)
70 distinguishing alpha and beta (p. 847) Distinguishing alpha and beta involves measurement and attribution and the process of identifying how much of an asset’s return is generated by alpha and how much is generated by beta. (p. 847)
71 enhanced index products (p. 855) Enhanced index products are designed to take slightly more risk than the index within tightly controlled parameters and offer a little extra return, usually on a large pool of capital. (p. 855)
72 index products (p. 855) Index products take little or no active risk, extract no added value, and are not expected to generate active return. (p. 855)
73 new investment model (p. 854) In the new investment model, investments are allocated with flexibility and in the explicit context of alpha and beta management. (p. 854)
74 passively managed portfolio (p. 855) A passively managed portfolio, such as an indexed buy-and- hold portfolio, seeks to match the return of an index or a benchmark without engaging in active trading that attempts to generate improved performance. (p. 855)
75 portable alpha (p. 848) Portable alpha is the ability of a particular investment product or strategy to be used in the separation of alpha and beta. (p. 848)
76 separating alpha and beta (p. 847) Separating alpha and beta involves portfolio management and refers to attempts to independently manage a portfolio’s alpha and its exposure to beta, each toward desired levels. (p. 847)
77 smart beta (p. 845) Smart beta is the strategy of implementing a rules-based portfolio weighting scheme based on one or more characteristics in the underlying assets that generates portfolio weights that differ from a market-capitalization weighting scheme. (p. 845)
78 strategic asset allocation decision (p. 853) The strategic asset allocation decision is the long-term target asset allocation based on investor objectives and long-term expectations of returns and risk. (p. 853)
79 tactical asset allocation (p. 853) Tactical asset allocation is the process of making portfolio decisions to alter the systematic risks of the portfolio through time in an attempt to earn superior risk adjusted returns. (p. 853)
80 traditional approach to portfolio allocation (p. 853) In the traditional approach to portfolio allocation, the top- level decision is a long-term target allocation decision, known as the strategic asset allocation decision. (p. 853)
81 zero-sum game (p. 856) A zero-sum game is a market, environment, or situation in which any gains to one party must be equally offset by losses to one or more other parties. (p. 856)