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Glossary

E

Early amortization risk
Most revolving ABS are subject to the risk of early-amortization events-also known as payout events or early calls. A variety of developments, such as the following, may cause an early-amortization event: insufficient payments by the underlying borrowers; insufficient excess spread; a rise in the default rate on the underlying loans above a specified level; a drop in available credit enhancements below a specified level; and bankruptcy on the part of the sponsor or the servicer.
Early call risk
The risk to bond investors that high-yielding bonds will be called early, with the result that proceeds may be reinvested at lower interest rates.
Earnings at risk
A variation of VAR that reflects the risk of a company’s earnings instead of its market value.
Earnings expectation management
Attempts by management to influence analysts'earnings forecasts
Earnings game
Management’s focus on reporting earnings that meet consensus estimates.
Earnings management activity
Deliberate activity aimed at influencing reporting earnings numbers, often with the goal of placing management in a favorable light; the opportunistic use of accruals to manage earnings.
Earnings momentum 
A growth investment substyle that focuses on companies with earnings momentum (high quarterly year-over-year earnings growth).
Earnings per share
The amount of income earned during a period per share of common stock.
Earnings yield
Earnings per share divided by price; the reciprocal of the P/E ratio.
Econometrics
The application of quantitative modeling and analysis grounded in economic theory to the analysis of economic data.
Economic exposure
The risk associated with changes in the relative attractiveness of products and services offered for sale, arising out of the competitive effects of changes in exchange rates.
Economic indicators 
Economic statistics provided by government and established private organizations that contain information on an economy’s recent past activity or its current or future position in the business cycle.
EBA
European Banking Authority
EC
European Commission
ECB
European Central Bank
ECOFIN
Economic and Financial Council
Economic indicator
Statistical measures of current conditions in an economy. “Leading” economic indicators such as those that track consumer confidence, factory orders, or money supply may signal short term economic strength or weakness. “Lagging” economic indicators such as business spending or unemployment figures move up or down as the economy strengthens or weakens. Economic indicators together provide a picture of the overall health of an economy or economic zone and how bond prices and yields might be affected.
Economic order quantity–reorder point
An approach to managing inventory based on expected demand and the predictability of demand; the ordering point for new inventory is determined based on the costs of ordering and carrying inventory, such that the total cost associated with inventory is minimized.
Economic sectors
Large industry groupings.
Economic surplus 
The market value of assets minus the present value of liabilities.
Economic value added (EVA) 
A commercial implementation of the residual income concept; the computation of EVA is the net operating profit after taxes minus the cost of capital, where these inputs are adjusted for a number of items.
Economies of scale
In reference to mergers, it is the savings achieved through the consolidation of operations and elimination of duplicate resources.
Effective annual rate
The amount by which a unit of currency will grow in a year with interest on interest included.
Effective annual yield
An annualized return that accounts for the effect of interest on interest; EAY is computed by compounding 1 plus the holding period yield forward to one year, then subtracting 1.
Effective duration 
Duration adjusted to account for embedded options.
Effective spread 
Two times the distance between the actual execution price and the midpoint of the market quote at the time an order is entered; a measure of execution costs that captures the effects of price improvement and market impact.
Efficiency
In statistics, a desirable property of estimators; an efficient estimator is the unbiased estimator with the smallest variance among unbiased estimators of the same parameter.
Efficient frontier
The portion of the minimum-variance frontier beginning with the global minimum-variance portfolio and continuing above it; the graph of the set of portfolios offering the maximum expected return for their level of variance of return.
Efficient portfolio
A portfolio offering the highest expected return for a given level of risk as measured by variance or standard deviation of return.
Elasticity
A measure of sensitivity; the incremental change in one variable with respect to an incremental change in another variable.
Electronic communications networks
Computer-based auctions that operate continuously within the day using a specified set of rules to execute orders. Synonyms: ECNs
Electronic Delivery
Means for shareholders to receive an electronic copy of proxy materials, or other shareholder materials, through online services rather than via hard copy in the mail. Shareholders must consent to electronic delivery of their proxy materials.
Electronic funds transfer
The use of computer networks to conduct financial transactions electronically.
Emerging market debt 
The sovereign debt of nondeveloped countries.
Empirical probability
The probability of an event estimated as a relative frequency of occurrence.
Endogenous variable 
A variable whose values are determined within the system.
Endowments
Long-term funds generally owned by operating non-profit institutions such as universities and colleges, museums, hospitals, and other organizations involved in charitable activities.
Economic risk
Economic risk describes the vulnerability of a bond to downturns in the economy. For example, virtually all types of high-yield bonds are vulnerable to economic risk. In recessions, high-yield bonds typically lose more principal value than investment-grade bonds. If investors grow anxious about holding low-quality bonds, they may trade them for the higher-quality debt, such as government bonds and investment-grade corporate bonds. This “flight to quality” particularly impacts high-yield issuers.
EEA
Economic and Financial Committee
EFC-FST
Economic and Financial Committee-Financial Stability Table
EGFI
Expert Group on Financial Information
EGPR
Expert Group on Prudential Regulation
EIOPA
European Insurance and Occupational Pensions Authority
EIOPC
European Insurance and Occupational Pensions Committee
Embedded option
A provision that gives the issuer or bondholder an option, but not the obligation, to take an action against the other party. The most common embedded option is a call option, giving the issuer the right to call, or redeem, the principal of a bond before the scheduled maturity date.
Emerging market bonds
Emerging market bonds usually include government (or “sovereign”) bonds; sub-sovereign bonds and corporate bonds. Domestic emerging market bonds-those issued within an emerging market country-make up about ¾ of the amount of debt in the emerging market bond markets but because it can be difficult for a variety of reasons to trade in domestic emerging bonds, emerging market bonds held by foreign investors are usually foreign or external emerging market bonds. The majority of external emerging market bonds are government bonds.
EMMA
The Municipal Securities Rulemaking Board's, Electronic Municipal Market Access website, www.emma.msrb.org, which is the repository for municipal issuers' continuing disclosure documents. The official website provides free real-time access to prices of bonds and notes when sold or bought from customers, as well as prices paid in inter-dealer transactions and key bond data, such as official statements for most new offerings of municipal bonds, notes, college savings plans and other municipal securities.
EPPC
European Public Policy Committee
Enhanced derivatives products companies
A type of subsidiary engaged in derivatives transactions that is separated from the parent company in order to have a higher credit rating than the parent company. Synonyms: EDPC
Enterprise risk management
A form of centralized risk management that typically encompasses the management of a broad variety of risks, including insurance risk.
Enterprise value
Total company value (the market value of debt, common equity, and preferred equity) minus the value of cash and investments. Synonyms: EV
Equal probability rebalancing 
Rebalancing in which the manager specifies a corridor for each asset class as a common multiple of the standard deviation of the asset class’s returns. Rebalancing to the target proportions occurs when any asset class weight moves outside its corridor.
Equal weighted 
In an equal-weighted index, each stock in the index is weighted equally.
Equilibrium
The condition in which supply equals demand.
Equitized
Given equity market systematic risk exposure.
Equitizing cash
A strategy used to replicate an index. It is also used to take a given amount of cash and turn it into an equity position while maintaining the liquidity provided by the cash.
Equity
Assets less liabilities; the residual interest in the assets after subtracting the liabilities.
Equity carve-out
A form of restructuring that involves the creation of a new legal entity and the sale of equity in it to outsiders.
Equity charge
The estimated cost of equity capital in money terms.
Equity forward
A contract calling for the purchase of an individual stock, a stock portfolio, or a stock index at a later date at an agreed-upon price.
Equity method
A basis for reporting investment income in which the investing entity recognizes a share of income as earned rather than as dividends when received. These transactions are typically reflected in the investments in associates or in the equity method investments.
Equity options
Options on individual stocks; also known as stock options.
Equity risk premium
The expected return on equities minus the risk-free rate; the premium that investors demand for investing in equities.
Equity swap
A swap transaction in which at least one cash flow is tied to the return to an equity portfolio position, often an equity index.
Equity-indexed annuity 
A type of life annuity that provides a guarantee of a minimum fixed payment plus some participation in stock market gains, if any.
Error autocorrelation
The autocorrelation of the error term.
Error term
The portion of the dependent variable that is not explained by the independent variable(s) in the regression.
ESG risk
The risk to a company’s market valuation resulting from environmental, social, and governance factors.
ESAs
European Supervisory Authorities
ESCB
European System of Central Banks
ESFS
European System of Financial Supervisors
ESMA
European Securities and Markets Authority
ESRB
European Systemic Risk Board
ESRC
European Systemic Risk Council
Estimate
The particular value calculated from sample observations using an estimator.
Estimated parameters
With reference to regression analysis, the estimated values of the population intercept and population slope coefficient(s) in a regression. Synonyms: fitted parameters
Estimation
With reference to statistical inference, the subdivision dealing with estimating the value of a population parameter.
Estimator
An estimation formula; the formula used to compute the sample mean and other sample statistics are examples of estimators.
Eurodollar
A dollar deposited outside the United States.
European-style option
An option contract that can only be exercised on its expiration date.
Eurozone
The region of countries using the euro as a currency.
Event
Any outcome or specified set of outcomes of a random variable.
Ex post alpha
The average return achieved in a portfolio in excess of what would have been predicted by CAPM given the portfolio’s risk level; an after-the-fact measure of excess risk-adjusted return. Synonyms: Jensen’s alpha
Excess currency return 
The expected currency return in excess of the forward premium or discount.
EU
European Union
Eurobond
Eurobonds are bonds that are denominated in a currency other than that of the European country in which they are issued. They are usually issued in more than one country of issue and traded across international financial centers. Supranational organizations and corporations are major issuers in the Eurobond market.
Eurodollar
A dollar deposited outside the United States.
European-style option
An option contract that can only be exercised on its expiration date.
Euro-zone
The European Union Countries that use the Euro as the single currency and in which a single monetary policy is conducted under the responsibility of the European Central Bank. In sharing a common currency, the member states of the European Economic and Monetary Union (EMU) are governed by the same monetary policy but this uniformity does not extend at the country level to alignment
Evaluator
An independent service responsible for appraising the value of securities in a trust’s portfolio.
Event risk
Company and industry “event” risk encompasses a variety of pitfalls that can affect a company's ability to repay its debt obligations on time. These include poor management, changes in management, failure to anticipate shifts in the company's markets, rising costs of raw materials, regulations and new competition. Another kind of event risk is the possibility of natural or man made disasters affecting an issuer's ability to repay its obligations. Events that adversely affect a whole industry may have a spillover effect on the bonds of issuers in that industry.
Excess spread
The net amount of interest payments from the underlying assets after bondholders and expenses are paid and after all losses are covered. Excess spread may be paid into a reserve account and used as a partial credit enhancement or it may be released to the seller or the originator of the assets.
Excess kurtosis
Degree of peakedness (fatness of tails) in excess of the peakedness of the normal distribution.
Exchange
A regulated venue for the trading of investment instruments.
Exchange for physicals
A permissible delivery procedure used by futures market participants, in which the long and short arrange a delivery procedure other than the normal procedures stipulated by the futures exchange.
Exchange fund 
A fund into which several investors place their different share holdings in exchange for shares in the diversified fund itself.
Exchange ratio
The number of shares that target stockholders are to receive in exchange for each of their shares in the target company.
Ex-dividend
Trading ex-dividend refers to shares that no longer carry the right to the next dividend payment.
Ex-dividend date
The first date that a share trades without (i.e., “ex”) the dividend.
Execution uncertainty
  Uncertainty pertaining to the timing of execution, or if execution will even occur at all.
Exercise date
The day that employees actually exercise the options and convert them to stock.
Exercise price
The fixed price at which an option holder can buy or sell the underlying. Synonyms: strike price striking price strike
Exercise rate
The fixed rate at which the holder of an interest rate option can buy or sell the underlying. Synonyms: strike rate
Exercise the option
The process of using an option to buy or sell the underlying. Synonyms: exercising the option
Exhaustive
Covering or containing all possible outcomes.
Exogenous shocks 
Events from outside the economic system that affect its course. These could be short-lived political events, changes in government policy, or natural disasters, for example.
Exogenous variable
A variable whose values are determined outside the system.
Expectational arbitrage
Investing on the basis of differential expectations.
Expected holding-period return
The expected total return on an asset over a stated holding period; for stocks, the sum of the expected dividend yield and the expected price appreciation over the holding period.
Expected value
The probability-weighted average of the possible outcomes of a random variable.
Expensed
Taken as a deduction in arriving at net income.
Exchangeable bond
A bond with an option to exchange it for shares in a company other that the issuer.
Exchange-traded fund
A fund that tracks an index, a commodity or a basket of assets. It is passively-managed like an index fund, but traded like a stock on an exchange, experiencing price changes throughout the day as they are bought and sold. Bond ETFs like bond mutual funds, hold a portfolio of bonds and can differ widely in their investment strategies.
Exempt facilities bond
Refers to those types of privately owned or privately used facilities which are authorized to be issued on a tax-exempt basis under the Internal Revenue Code. The Tax Reform Act of 1986 amended prior law to exclude the following types of facilities from those which can be financed on a tax-exempt basis: sports facilities; convention and trade show facilities; air and water pollution control facilities; privately owned airport, dock, wharf and mass-commuting facilities; and most parking facilities, among others.
Expected maturity date
The date on which principal is projected to be paid to investors. It is based on assumptions about collateral performance.
Expenses
Outflows of economic resources or increases in liabilities that result in decreases in equity (other than decreases because of distributions to owners); reductions in net assets associated with the creation of revenues.
Expiration date
The date on which a derivative contract expires.
Explicit transaction costs 
The direct costs of trading—such as broker commission costs, taxes, stamp duties, and fees paid to exchanges; costs for which the trader could be given a receipt.
Exposure to foreign exchange risk
The risk of a change in value of an asset or liability denominated in a foreign currency due to a change in exchange rates.
External growth
Company growth in output or sales that is achieved by buying the necessary resources externally (i.e., achieved through mergers and acquisitions).
Externality
The effect of an investment on other things besides the investment itself. Those consequences of a transaction (or process) that do not fall on the parties to the transaction (or process).
Externality
Those consequences of a transaction (or process) that do not fall on the parties to the transaction (or process).
Extension risk
The risk that investors' principal will be committed for a longer period of time than expected. In the context of mortgage- or asset-backed securities, this may be due to rising interest rates or other factors that slow the rate at which loans are repaid.
Extraordinary redemption
This redemption is different from optional redemption or mandatory redemption in that it occurs under an unusual circumstance such as destruction of the facility financed.
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