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…
What is Mispricing? Mispricing causes a divergence between the market price of a security and the fundamental value of that security. The law of one price states that the market price of a security is equal to the present discounted value of all cash flows generated by the security. However, it is not always the…
What are Commodity Linked Securities? Commodity linked securities are investment instruments or securities that are linked to one or more commodity prices. Unlike commodities, which provide no income to the owner, commodity linked securities usually give some payout to holders. Commodity Linked Securities – Bonds Commodty linked bonds are securities offered by governments whose yield…
What are Hybrid Securities? Hybrid securities are investment instruments that combine the features of pure equities and pure bonds. These securities tend to offer a higher return than pure fixed income securities such as bonds but a lower return than pure variable income securities such as equities. They are considered less riskier than pure variable…
What is a Fairly Valued Security? A security is said to be fairly valued if its market price is equal to its true value. Since the true value of a security is usually not known, the question of whether a security is fairly valued lacks a definite answer. Most securities are valued using some variation…
What is the Local Expectations Theory? In finance and economics, the Local Expectations Theory is a theory that suggests that the returns of bonds with different maturities should be the same over the short-term investment horizon. Essentially, the local expectations theory is one of the variations of the pure expectations theory, which assumes that the…
