Efficient market

A theory about the stock market stating that the current prices of stocks reflect all that is known about the company at that moment, and that new information is reflected immediately in changes to that stock's market price.

Similar financial terms

Efficient portfolio
A portfolio that provides the superior expected return for a given level of risk

Operationally efficient market
Also called an internally efficient market, one in which investors can obtain transactions services that reflect the true costs associated with furnishing those services.

Markowitz efficient set of portfolios
The collection of all efficient portfolios, graphically referred to as the Markowitz efficient frontier.

Markowitz efficient portfolio
Also called a mean-variance efficient portfolio, a portfolio that has the highest expected return at a given level of risk.

Markowitz efficient frontier
The graphical depiction of the Markowitz efficient set of portfolios representing the boundary of the set of feasible portfolios that have the maximum return for a given level of risk. Any portfolios above the frontier cannot be achieved. Any below the frontier are dominated by Markowitz efficient portfolios.

Coefficient of determination
A measure of the goodness of fit of the relationship between the dependent and independent variables in a regression analysis; for instance, the percentage of variation in the return of an asset explained by the market portfolio return.

Correlation coefficient
A standardized statistical measure of the dependence of two random variables, defined as the covariance divided by the standard deviations of two variables.

Gini coefficients
The ratio between the area between a Lorenz curve and the 45o line and the area below the 45o line. The Gini coefficient is a precise way of measuring the position of the Lorenz Curve. To work out the Gini coefficient we measure the ratio of the area between the Lorenz Curve and the 45 degree line to the whole area below the 45 degree line. If the Lorenz Curve was the 45 degree line - then the value of the Gini Coefficient would be zero, but as the level of inequality grows so does the Gini Coef ...

Efficient Market
A market in which new information is immediately available to all investors and potential investors. A market in which all information is instantaneously assimilated and therefore has no distortions.

The practice of revaluing an instrument ot reflect the current values of the relevant market variables.

Inverted Market
A market where futures prices decrease with maturity.

Gray market
An unofficial market where new share issues are bought and sold before they officially become available for trading on the stock exchange. The same logic applies to the forward market for newly issued bonds market - bonds are traded before the final terms on the bond are negotiated.

Bull market
General market condition characterized by optimism, rising prices in stocks, and a belief that near-term future will see higher market prices for stocks.

Bear Market
An extended period of general price decline in an individual security, an asset, or a market.

Market Close
The term market close refers to the time of day that a market closes. In the 24h foreign exchange market, there is no official market close. 5:00 PM EST is often referred to and understood as the market close because value dates for spot transactions change to the next new value date at that time.

Yankee market
The foreign market in the United States.

Middle East dollar market
A Middle East dollar market exists in Bahrain where eurodollars and other currencies are intermediated in by a number of Arab and non-Arab banks. Collectively these various regional banking centres make the eurocurrency market one of the largest moneymarkets in the world.

Upstairs market
A network of trading desks for the major brokerage firms and institutional investors that communicate with each other by means of electronic display systems and telephones to facilitate block trades and program trades.

Two-sided market
A market in which both bid and asked prices, good for the standard unit of trading, are quoted.

Tight market
A tight market, as opposed to a thin market, is one in which volume is large, trading is active and highly competitive, and spreads between bid and ask prices are narrow.

Third market
Exchange-listed securities trading in the OTC market.

Thin market
A market in which trading volume is low and in which consequently the bid-ask spread are wide and the liquidity of the instrument traded is low.

Technical condition of a market
Demand and supply factors affecting price, in particular the net position, either long or short, of the dealer community.

Stock market
Also called the equity market, the market for trading equities.

Specific issues market
The market in which dealers reverse in securities they wish to short.

Security market plane
A plane that shows the equilibrium between expected return and the beta coefficient of more than one factor.

Security market line
Line representing the relationship between expected return and market risk.

Secondary market
The market where securities are traded after they are initially offered in the primary market. Most trading is done in the secondary market. The New York stock Exchange, as well as all other stock exchanges, the bond markets, etc., are secondary markets. Seasoned securities are traded in the secondary market.

Samurai market
The foreign market in Japan.

Rembrandt market
The foreign market in the Netherlands.

Real market
The bid and offer prices at which a dealer could do "size." Quotes in the brokers market may reflect not the real market, but pictures painted by dealers playing trading games.

Primary market
The first buyer of a newly issued security buys that security in the primary market. All subsequent trading of those securities is done in the secondary market.

Compares a stock's market value to the value of total assets less total liabilities (book value). Determined by dividing current stock price by common stockholder equity per share (book value), adjusted for stock splits. Also called Price/book ratio

Perfectly competitive financial markets
Markets in which no trader has the power to change the price of goods or services. Perfect capital markets are characterized by the following conditions: a) trading is costless, and access to the financial markets is free, b) information about borrowing and lending opportunities is freely available, c) there are many traders, and no single trader can have a significant impact on market prices.

Perfect market view (of dividend policy)
Analysis of a decision on dividend policy, in a perfect capital market environment, that shows the irrelevance of dividend policy in a perfect capital market.

Perfect market view (of capital structure)
Analysis of a firm's capital structure decision, which shows the irrelevance of capital structure in a perfect capital market.

Perfect capital market
A market in which there are never any arbitrage opportunities.

Over-the-counter market (OTC)
A decentralized market (as opposed to an exchange market) where geographically dispersed dealers are linked together by telephones and computer screens. The market is for securities not listed on a stock or bond exchange. The NASDAQ market is an OTC market for U.S. stocks.

Open-market purchase operation
A systematic program of repurchasing shares of stock in market transactions at current market prices, in competition with other prospective investors.

Open-market operation
Purchase or sale of government securities by the monetary authorities to increase or decrease the domestic money supply.

One-way market
(a) A market in which only one side, the bid or asked, is quoted or firm. (b) A market that is moving strongly in one direction.

Nonmarketed claims
Claims that cannot be easily bought and sold in the financial markets, such as those of the government and litigants in lawsuits.

New-issues market
The market in which a new issue of securities is first sold to investors.

Negotiated markets
Markets in which each transaction is separately negotiated between buyer and seller (i.e. an investor and a dealer).

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

Money market hedge
The use of borrowing and lending transactions in foreign currencies to lock in the home currency value of a foreign currency transaction.

Money market fund
A mutual fund that invests only in short term securities, such as bankers' acceptances, commercial paper, repurchase agreements and government bills. The net asset value per share is maintained at $1. 00. Such funds are not federally insured, although the portfolio may consist of guaranteed securities and/or the fund may have private insurance protection.

Money market demand account
An account that pays interest based on short-term interest rates.

Money market
Money markets are for borrowing and lending money for three years or less. The securities in a money market can be U.S.government bonds, treasury bills and commercial paper from banks and companies.

Marketplace price efficiency
The degree to which the prices of assets reflect the available marketplace information. Marketplace price efficiency is sometimes estimated as the difficulty faced by active management of earning a greater return than passive management would, after adjusting for the risk associated with a strategy and the transactions costs associated with implementing a strategy.

Marketed claims
Claims that can be bought and sold in financial markets, such as those of stockholders and bondholders.

A negotiable security is said to have good marketability if there is an active secondary market in which it can easily be resold.

Market-if-touched (MIT)
A price order, below market if a buy or above market if a sell, that automatically becomes a market order if the specified price is reached.

Market value-weighted index
An index of a group of securities computed by calculating a weighted average of the returns on each security in the index, with the weights proportional to outstanding market value.

Market value ratios
Ratios that relate the market price of the firm's common stock to selected financial statement items.

Market value
(a) The price at which a security is trading and could presumably be purchased or sold. (b) The value investors believe a firm is worth; calculated by multiplying the number of shares outstanding by the current market price of a firm's shares.

Market timing costs
Costs that arise from price movement of the stock during the time of the transaction which is attributed to other activity in the stock.

Market timing
Asset allocation in which the investment in the market is increased if one forecasts that the market will outperform T-bills.

Market timer
A money manager who assumes he or she can forecast when the stock market will go up and down.

Market segmentation or preferred habitat theory
A biased expectations theory that asserts that the shape of the yield curve is determined by the supply of and demand for securities within each maturity sector.

Market sectors
The classifications of bonds by issuer characteristics, such as state government, corporate, or utility.

Market risk
Risk that cannot be diversified away.

Market return
The return on the market portfolio.

Market prices
The amount of money that a willing buyer pays to acquire something from a willing seller, when a buyer and seller are independent and when such an exchange is motivated by only commercial consideration.

Market price of risk
A measure of the extra return, or risk premium, that investors demand to bear risk. The reward-to-risk ratio of the market portfolio.

Market portfolio
A portfolio consisting of all assets available to investors, with each asset held -in proportion to its market value relative to the total market value of all assets.

Market overhang
The theory that in certain situations, institutions wish to sell their shares but postpone the share sales because large orders under current market conditions would drive down the share price and that the consequent threat of securities sales will tend to retard the rate of share price appreciation. Support for this theory is largely anecdotal.

Market order
This is an order to immediately buy or sell a security at the current trading price.

Market model
This relationship is sometimes called the single-index model. The market model says that the return on a security depends on the return on the market portfolio and the extent of the security's responsiveness as measured, by beta. In addition, the return will also depend on conditions that are unique to the firm. Graphically, the market model can be depicted as a line fitted to a plot of asset returns against returns on the market portfolio.

Market impact costs
Also called price impact costs, the result of a bid/ask spread and a dealer's price concession.

Market cycle
The period between the 2 latest highs or lows of the S&P 500, showing net performance of a fund through both an up and a down market. A market cycle is complete when the S&P is 15% below the highest point or 15% above the lowest point (ending a down market). The dates of the last market cycle are: 12/04/87 to 10/11/90 (low to low).

Market conversion price
Also called conversion parity price, the price that an investor effectively pays for common stock by purchasing a convertible security and then exercising the conversion option. This price is equal to the market price of the convertible security divided by the conversion ratio.

Market clearing
Total demand for loans by borrowers equals total supply of loans from lenders. The market, any market, clears at the equilibrium rate of interest or price.

Market capitalization rate
Expected return on a security. The market-consensus estimate of the appropriate discount rate for a firm's cash flows.

Market capitalization
The total dollar value of all outstanding shares. Computed as shares times current market price. It is a measure of corporate size.

An arrangement whereby the profits or losses on a futures contract are settled each day.

Make a market
A dealer is said to make a market when he quotes bid and offered prices at which he stands ready to buy and sell.

Locked market
A market is locked if the bid = ask price. This can occur, for example, if the market is brokered and brokerage is paid by one side only, the initiator of the transaction.

Open market purchase
An order placed by an insider, after all appropriate documentation has been filed, to buy restricted securities openly on an exchange.

TMWX (Wilshire 5000 Total Market Index)
The TMWX measures the performance of all U.S. headquartered equity securities with readily available price data.

Market Mix
The description of the four P's of marketing - i.e. Price, Place (Distribution), Product, and Promotion as it applies to a particular commercialization plan.
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Collection float

The negative float that is created between the time when you deposit a check in your account and the time when funds are made available.

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