What is the Presidential Cycle? The Presidential Cycle is a theory that suggests that the United States stock market experiences a decline in the first year a new president takes office. The theory was first developed by Yale Hirsch, a stock market historian. It suggests that the US presidential elections exert a predictable effect on…
What is Credit Valuation Adjustment (CVA)? Credit Valuation Adjustment (CVA) is the price that an investor would pay to hedge the counterparty credit risk of a derivative instrument. It reduces the mark to market value of an asset by the value of the CVA. Credit Valuation Adjustment was introduced as a new requirement for fair…
What is Mean-Variance Analysis? Mean-Variance Analysis is a technique that investors use to make decisions about financial instruments to invest in, based on the amount of risk that they are willing to accept (risk tolerance). Ideally, investors expect to earn higher returns when they invest in riskier assets. When measuring the level of risk, investors…
What is Signaling? Signaling refers to the act of using insider information to initiate a trading position. It occurs when an insider releases crucial information about a company that triggers the buying or selling of its stock by people who do not ordinarily possess insider information. The actions of the insider are considered a market…
What is Short Interest? Short interest refers to the number of shares sold short but not yet repurchased or covered. The short interest of a company can be indicated as an absolute number or as a percentage of shares outstanding. The short interest is looked at by investors to help determine the prevailing market sentiment…
What is a Non-Callable Preferred Stock? Non-callable preferred stock (also known as non-redeemable preferred stock) is a type of preferred stock shares that do not include a callable feature. In other words, the issuer of non-callable preferred shares does not have the option to buy back the issued shares (call) at some predetermined price after…
What is a Currency Option Bond? A currency option bond is a security that offers returns in multiple currencies. The holder of a currency option bond can choose the currency in which they would like to be paid. The feature extends to both the coupon payments and the principal payment. Practical Example An American manufacturer…
What is a Collateralized Debt Obligation (CDO)? A Collateralized Debt Obligation (CDO) is a synthetic investment product that represents different loans bundled together and sold by the lender in the market. The holder of the collateralized debt obligation can, in theory, collect the borrowed amount from the original borrower at the end of the loan…
What is Stock Valuation? Every investor who wants to beat the market must master the skill of stock valuation. Essentially, stock valuation is a method of determining the intrinsic value (or theoretical value) of a stock. The importance of valuing stocks evolves from the fact that the intrinsic value of a stock may be different…
