Cumulative abnormal return (CAR)

Sum of the differences between the expected return on a stock and the actual return that comes from the release of news to the market.

Similar financial terms

Non-cumulative preferred stock
Preferred stock whose holders must forgo dividend payments when the company misses a dividend payment.

Cumulative dividend feature
A requirement that any missed preferred or preference stock dividends be paid in full before any common dividend payment is made.

Cumulative preferred stock
Preferred stock whose dividends accrue, should the issuer not make timely dividend payments.

Cumulative probability distribution
A function that shows the probability that the random variable will attain a value less than or equal to each value that the random variable can take on.

Cumulative Translation Adjustment (CTA) account
An entry in a translated balance sheet in which gains and/or losses from translation have been accumulated over a period of years. The CTA account is required under the FASB No. 52 rule.

Cumulative voting
A system of voting for directors of a corporation in which shareholder's total number of votes is equal to his number of shares held times the number of candidates.

Abnormal return
In event studies, the part of the return that is not predicted; the change in value caused by the event. Also referred to as excess return, benchmark adjusted.

Abnormal returns
Part of the return that is not due to systematic influences (market wide influences). In other words, abnormal returns are above those predicted by the market movement alone.

Total return swap
A total return swap is an exchange of a return on a debt security for LIBOR plus a spread. The return on the debt security includes income such as coupons and the change in its value.

Internal Rate of Return (IRR)
The internal rate of Return (IRR) is the discount rate that equals the present value of a future steam of cash flows to the initial investment. The IRR can be thought of as the annualized rate of return (in percent) of an investment using compound interest rate calculations. The IRR calculation is very useful when a number of future cash flows on which an interest rate needs to be calculated.

After-tax real rate of return
Money after-tax rate of return minus the inflation rate.

Annualized holding period return
The annual rate of return that when compounded t times, would have given the same t-period holding return as actually occurred from period 1 to period t.

Unleveraged required return
The required return on an investment when the investment is financed entirely by equity (i.e. no debt).

Total return
In performance measurement, the actual rate of return realized over some evaluation period. In fixed income analysis, the potential return that considers all three sources of return (coupon interest, interest on interest, and any capital gain/loss) over some i nvestment horizon.

Total dollar return
The dollar return on a nondollar investment, which includes the sum of any dividend/interest income, capital gains or losses, and currency gains or losses on the investment. See also: total return.

T-period holding-period return
The percentage return over the T-year period an investment lasts.

Subperiod return
The return of a portfolio over a shorter period of time than the evaluation period.

Safety-net return
The minimum available return that will trigger an immunization strategy in a contingent immunization strategy.

Risk-adjusted return
Return earned on an asset normalized for the amount of risk associated with that asset.

Riskless rate of return
The rate earned on a riskless asset.

Return-to-maturity expectations
A variant of pure expectations theory which suggests that the return that an investor will realize by rolling over short-term bonds to some investment horizon will be the same as holding a zero-coupon bond with a maturity that is the same as that investment horizon.

Return on total assets
The ratio of earnings available to common stockholders to total assets.

Return on investment (ROI)
Generally, book income as a proportion of net book value.

Return on equity (ROE)
Indicator of profitability. Determined by dividing net income for the past 12 months by common stockholder equity (adjusted for stock splits). Result is shown as a percentage. Investors use ROE as a measure of how a company is using its money. ROE may be decomposed into return on assets (ROA) multiplied by financial leverage (total assets/total equity).

Return on assets (ROA)
Indicator of profitability. Determined by dividing net income for the past 12 months by total average assets. Result is shown as a percentage. ROA can be decomposed into return on sales (net income/sales) multiplied by asset utilization (sales/assets).

Return
The change in the value of a portfolio over an evaluation period, including any distributions made from the portfolio during that period.

Required return
The minimum expected return you would require to be willing to purchase the asset, that is, to make the investment.

Realized return
The return that is actually earned over a given time period.

Rate of return ratios
Ratios that are designed to measure the profitability of the firm in relation to various measures of the funds invested in the firm.

Portfolio internal rate of return
The rate of return computed by first determining the cash flows for all the bonds in the portfolio and then finding the interest rate that will make the present value of the cash flows equal to the market value of the portfolio.

Multiple rates of return
More than one rate of return from the same project that make the net present value of the project equal to zero. This situation arises when the IRR method is used for a project in which negative cash flows follow positive cash flows. For each sign change in the cash flows, there is a rate of return.

Money rate of return
Annual money return as a percentage of asset value.

Market return
The return on the market portfolio.

Leveraged required return
The required return on an investment when the investment is financed partially by debt.

Risk-adjusted return on capital (RAROC)
Measures performance on a risk-adjusted basis. Calculated as the economic return divided by economic capital. RAROC helps determine if a company has the right balance between capital, returns and risk. The central concept in RAROC is economic capital: the amount of capital a company should put aside needed based on the risk it runs.

Wild Card Play
The right, but not the obligation, to deliver on a futures contract at the closing price for a period of time after the trading close.

Wild card option
The right of the seller of a Treasury Bond futures contract to give notice of intent to deliver at or before 8:00 p.m. Chicago time after the closing of the exchange (3:15 p.m. Chicago time) when the futures settlement price has been fixed.

Monte Carlo simulation
An analytical technique for solving a problem by performing a large number of trail runs, called simulations, and inferring a solution from the collective results of the trial runs. Method for calculating the probability distribution of possible outcomes.

Macaroni defense
The macaroni defense is a tactic used by a corporation that is the target of a hostile takeover bid involving the issue of a large number of bonds that must be redeemed at a higher value if the company is taken over.

Carve out a niche
Find a special position to monopolize

Car
A loose quantity term sometimes used to describe a the amount of a commodity underlying one commodity contract; e.g., "a car of bellies." Derived from the fact that quantities of the product specified in a contract used to correspond closely to the capacity of a railroad car.

CARDs
Certificates of Amortized Revolving Debt. Pass-through securities backed by credit card receivables.

Carring costs
Costs that increase with increases in the level of investment in current assets.

CARs
Certificates of Automobile Receivables. Pass-through securities backed by automobile receivables.

Cash and carry
Purchase of a security and simultaneous sale of a future, with the balance being financed with a loan or repo.

McCarthyism
Character assassination. Joseph McCarthy was a Senator from Wisconsin in the 1950s who gained national attention by his claims that the State Department and other agencies of the U.S. government was full of Communist sympathizers.

Debit card
A card that resembles a credit card but which debits a transaction account (checking account) with the transfers occurring contemporaneously with the customer's purchases. A debit card may be machine readable, allowing for the activation of an automated teller machine or other automated payments equipment.

Smart Card
The Smart Card (SC) is a sophisticated stored-value card that contains its own computer chip so that it can be loaded with digital cash from the owner's bank account whenever needed. In Europe, Smart Cards are also referred to as ChipKnip.

CARICOM (Caribbean Common Market)
Caribbean Common Market. Consists of 14 sister-member countries of the Caribbean community. Members include: Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent, Surinam, Trinidad and Tobago. They have set as a goal that in 1997 there will be a single market allowing for the free movement of labor. Conspicuous by their absence are the Cayman Islands and the British Virgin Islands, two major players in interna ...

Positive Carry
The condition whereby a portfolio after financing considerations still generates a positive income.

Carrying Broker
A member of a commodity exchange, usually a futures commission merchant, through whom another broker or customer elects to clear all or part of its trades.

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Did you know?

Reverse price risk

A type of mortgage-pipeline risk that occurs when a lender commits to sell loans to an investor at rates prevailing at application but sets the note rates when the borrowers close. The lender is thus exposed to the risk of falling rates.


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