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A measure of what a portfolio would have returned if it had taken on the same total risk as the market index.
Macaulay duration
The duration without dividing by 1 plus the bond’s yield to maturity. The term, named for one of the economists who first derived it, is used to distinguish the calculation from modified duration.
Macro attribution
Performance attribution analysis conducted on the fund sponsor level.
Macro expectations
Expectations concerning classes of assets.
Macroeconomic factor
A factor related to the economy—such as inflation rate, industrial production, or economic sector membership.
Macroeconomic factor model
A multifactor model in which the factors are surprises in macroeconomic variables that significantly explain equity returns.
Maintenance margin requirement
The margin requirement on any day other than the first day of a transaction.
Managed futures
Pooled investment vehicles, frequently structured as limited partnerships, that invest in futures and options on futures and other instruments.
Manager continuation policies
Policies adopted to guide the manager evaluations conducted by fund sponsors. The goal of manager continuation policies is to reduce the costs of manager turnover while systematically acting on indications of future poor performance.
Manager monitoring
A formal, documented procedure that assists fund sponsors in consistently collecting information relevant to evaluating the state of their managers’ operations; used to identify warning signs of adverse changes in existing managers’ organizations.
Market Abuse Directive
Make whole call
The obligation of an issuer of a corporate bond to pay a premium to an investor if the issuer pays off its bond before the final maturity. The premium is based on a formula that compensates the investor for future coupon payments that it will not receive because the bonds have been called.
Manager (or senior manager)
The underwriter that serves as the lead underwriter for an account. The “manager” generally negotiates the interest rate and purchase price in a negotiated transaction or serves as the generator of the consensus for the interest rate and purchase price to be bid in a competitive bidding situation. The “manager” signs the contracts on behalf of the account and generally receives either a fee or a slightly larger spread for its services in this capacity. See also joint managers.
Mandatory sinking-fund redemption
A requirement to redeem a fixed portion of term bonds, which may comprise the entire issue, in accordance with a fixed schedule. Although the principal amount of the bonds to be redeemed is fixed, the specific bonds which will be called to satisfy the requirement as to amount are selected by the trustee on a lot basis.
A company’s executive team and leadership responsible for overseeing a company
Manager review 
 detailed examination of a manager that currently exists within a plan sponsor’s program. The manager review closely resembles the manager selection process, in both the information considered and the comprehensiveness of the analysis. The staff should review all phases of the manager’s operations, just as if the manager were being initially hired.
Managerialism theories
Theories that posit that corporate executives are motivated to engage in mergers to maximize the size of their company rather than shareholder value.
A set of instructions detailing the investment manager’s task and how his performance will be evaluated.
Manufacturing resource planning
The incorporation of production planning into inventory management. An MRP analysis provides both a materials acquisition schedule and a production schedule.
The amount of money that a trader deposits in a margin account. The term is derived from the stock market practice in which an investor borrows a portion of the money required to purchase a certain amount of stock. In futures markets, there is no borrowing so the margin is more of a down payment or performance bond.
Market bid 
The best available bid; the highest price any buyer is currently willing to pay.
Market efficiency
A finance perspective on capital markets that deals with the relationship of price to intrinsic value. The traditional efficient markets formulation asserts that an asset’s price is the best available estimate of its intrinsic value. The rational efficient markets formulation asserts that investors should expect to be rewarded for the costs of information gathering and analysis by higher gross returns.
Market fragmentation
A condition whereby a market contains no dominant group of sellers (or buyers) that are large enough to unduly influence the market.
Market impact
The effect of the trade on transaction prices.
Market integration 
The degree to which there are no impediments or barriers to capital mobility across markets.
Market or interest rate risk
While investors are effectively guaranteed to receive interest and principal as promised, the underlying value of the bond itself may change depending on the direction of interest rates. As with all fixed-income securities, if interest rates in general rise after a bond is issued, the value of the issued security will fall, since bonds paying higher rates will come into the market. Similarly, if interest rates fall, the value of the older, higher-paying bond will rise in comparison with new issues. Interest rate risk is also known as market risk.
Market price or market value
For securities traded through an exchange, the last reported price at which a security was sold; for securities traded "over-the-counter," the current price of the security in the market.
A measure of the relative ease and speed with which a security can be purchased or sold in the secondary market.
Market microstructure 
The market structures and processes that affect how the manager’s interest in buying or selling an asset is translated into executed trades (represented by trade prices and volumes).
Market model
A regression equation that specifies a linear relationship between the return on a security (or portfolio) and the return on a broad market index.
Market on open order
A market order to be executed at the opening (closing) of the market. Synonyms: Market on close order
Market order 
An instruction to execute an order as soon as possible in the public markets at the best price available.
Market oriented 
With reference to equity investing, an intermediate grouping for investment disciplines that cannot be clearly categorized as value or growth.
Market price of risk
The slope of the capital market line, indicating the market risk premium for each unit of market risk.
Market rate
The rate demanded by purchasers of bonds, given the risks associated with future cash payment obligations of the particular bond issue.
Market resilience 
Condition where discrepancies between market prices and intrinsic values tend to be small and corrected quickly.
Market risk
The risk associated with interest rates, exchange rates, and equity prices.
Market risk premium
The expected excess return on the market over the risk-free rate.
Market segmentation 
The degree to which there are some meaningful impediments to capital movement across markets.
Market timing 
Increasing or decreasing exposure to a market or asset class based on predictions of its performance; with reference to performance attribution, returns attributable to shorter-term tactical deviations from the strategic asset allocation.
Marketability discount
A reduction or discount to value for shares that are not publicly traded.
Market-adjusted implementation shortfall
The difference between the money return on a notional or paper portfolio and the actual portfolio return, adjusted using beta to remove the effect of the return on the market.
Market-not-held order

A variation of the market order designed to give the agent greater discretion than a simple market order would allow. “Not held” means that the floor broker is not required to trade at any specific price or in any specific time interval.
Market-oriented investors
With reference to equity investors, investors whose investment disciplines cannot be clearly categorized as value or growth.
Marking to market
A procedure used primarily in futures markets in which the parties to a contract settle the amount owed daily. Also known as the daily settlement.
Markowitz decision rule
A decision rule for choosing between two investments based on their means and variances.
The revaluation of a financial asset or liability to its current market value or fair value.
Mass affluent
An industry term for a segment of the private wealth marketplace that is not sufficiently wealthy to command certain individualized services.
Matching principle
The accounting principle that expenses should be recognized when the associated revenue is recognized.
Matching strategy
An active investment strategy that includes intentional matching of the timing of cash outflows with investment maturities.
The condition of being of sufficient importance so that omission or misstatement of the item in a financial report could make a difference to users’ decisions.
Material Investments
Any investments or divestments that (i) involve a conflict of interest or related party or (ii) when aggregated with any other transactions approved by the Investment Committee during any one year, exceed an amount equal to 5% of Net Assets of the Company.
Matrix prices
Prices determined by comparisons to other securities of similar credit risk and maturity; the result of matrix pricing.
Matrix pricing
In the fixed-income markets, to price a security on the basis of valuation-relevant characteristics (e.g., debt-rating approach).
Mature growth rate
The earnings growth rate in a company’s mature phase; an earnings growth rate that can be sustained long term.
Mature phase
A stage of growth in which the company reaches an equilibrium in which investment opportunities on average just earn their opportunity cost of capital.
Maturity premium
An extra return that compensates investors for the increased sensitivity of the market value of debt to a change in market interest rates as maturity is extended.
Maturity variance
A measure of how much a given immunized portfolio differs from the ideal immunized portfolio consisting of a single pure discount instrument with maturity equal to the time horizon.
Maximum loss optimization 
A stress test to try and optimize mathematically the risk variable that would produce the maximum loss.
Material event
One of the events that must be disclosed to investors if they occur.
Maturity date
The date when the principal amount of a security is due to be repaid.
Maturity schedule
The listing, by dates and amounts, of principal maturities of an issue.
Mortgage Backed Securities
The sum of all values in a distribution or dataset divided by the number of values summed; a synonym of arithmetic mean.
Mean absolute deviation
With reference to a sample, the mean of the absolute values of deviations from the sample mean.
Mean excess return
The average rate of return in excess of the risk-free rate.
Mean reversion
The tendency of a time series to fall when its level is above its mean and rise when its level is below its mean; a mean-reverting time series tends to return to its long-term mean.
Mean-variance analysis
An approach to portfolio analysis using expected means, variances, and covariances of asset returns.
Measure of central tendency
A quantitative measure that specifies where data are centered.
Measure of location
A quantitative measure that describes the location or distribution of data; includes not only measures of central tendency but also other measures, such as percentiles.
Measurement scales
A scheme of measuring differences. The four types of measurement scales are nominal, ordinal, interval, and ratio.
The value of the middle item of a set of items that has been sorted into ascending or descending order; the 50th percentile.
Mega-cap buy-out funds
A class of buyout funds that takes public companies private.
Medium-term note
A debt security issued under a program that allows an issuer to offer notes continuously to investors through an agent. The size and terms of medium-term notes may be customized to meet investors' needs. Maturities can range from one to 30 years.
The absorption of one company by another; that is, two companies become one entity, and one or both of the premerger companies cease to exist as a separate entity.
Describes a distribution with kurtosis identical to that of the normal distribution.
Method based on forecasted fundamentals
An approach to using price multiples that relates a price multiple to forecasts of fundamentals through a discounted cash flow model.
Method of comparables
An approach to valuation that involves using a price multiple to evaluate whether an asset is relatively fairly valued, relatively undervalued, or relatively overvalued when compared to a benchmark value of the multiple.
Methodical investors
Investors who rely on “hard facts.”
Micro attribution
Performance attribution analysis carried out on the investment manager level.
Micro expectations
Expectations concerning individual assets.
Middle-market buy-out funds 
A class of buyout funds that purchase private companies whose revenues and profits are too small to access capital from the public equity markets.
The halfway point between the market bid and ask prices.
Minimum-variance frontier
The graph of the set of portfolios that have minimum variance for their level of expected return.
Markets in Financial Instruments Directive
Minimum-variance portfolio
The portfolio with the minimum variance for each given level of expected return.
Minority active investments
Investments in which investors exert significant influence, but not control, over the investee. Typically, the investor has 20 to 50 percent ownership in the investee.
Minority interest
The proportion of the ownership of a subsidiary not held by the parent (controlling) company. Synonyms: noncontrolling interest
Minority passive investments
Investments in which the investor has no significant influence or control over the operations of the investee. Synonyms: passive investments
Mismatching strategy
An active investment strategy whereby the timing of cash outflows is not matched with investment maturities.
Any departure of the market price of an asset from the asset’s estimated intrinsic value.
Missed trade opportunity costs 
Unrealized profit/loss arising from the failure to execute a trade in a timely manner.
Mixed factor models
Factor models that combine features of more than one type of factor model.
Mixed offering
A merger or acquisition that is to be paid for with cash, securities, or some combination of the two.
Modal interval
With reference to grouped data, the most frequently occurring interval.
The most frequently occurring value in a set of observations.
Model risk
The use of an inaccurate pricing model for a particular investment, or the improper use of the right model.
Model specification
With reference to regression, the set of variables included in the regression and the regression equation’s functional form.
Model uncertainty 
Uncertainty concerning whether a selected model is correct.
Modern portfolio theory
The analysis of rational portfolio choices based on the efficient use of risk. Synonyms: MPT
Modified duration
A measure of a bond’s price sensitivity to interest rate movements. Equal to the Macaulay duration of a bond divided by one plus its yield to maturity.
Modified duration
The analysis of rational portfolio choices based on the efficient use of risk.
Molodovsky effect
The observation that P/Es tend to be high on depressed EPS at the bottom of a business cycle and tend to be low on unusually high EPS at the top of a business cycle.
Momentum indicators
Valuation indicators that relate either price or a fundamental (such as earnings) to the time series of their own past values (or in some cases to their expected value).
Monetary assets and liabilities
Assets and liabilities with value equal to the amount of currency contracted for—a fixed amount of currency. Examples are cash, accounts receivable, mortgages receivable, accounts payable, bonds payable, and mortgages payable. Inventory is not a monetary asset. Most liabilities are monetary.
Modified duration
Duration adjusted to price and yield levels to represent percent change relationship of price and yield.
Ministry of Finance
Monetary default
Failure to pay principal or interest promptly when due.
Monetary policy
Government activity concerning interest rates and the money supply.
Monetary/nonmonetary method
Approach to translating foreign currency financial statements for consolidation in which monetary assets and liabilities are translated at the current exchange rate. Nonmonetary assets and liabilities are translated at historical exchange rates (the exchange rates that existed when the assets and liabilities were acquired).
Money market
The market for short-term debt instruments (one-year maturity or less).
Money market yield
A yield on a basis comparable to the quoted yield on an interest-bearing money market instrument that pays interest on a 360-day basis; the annualized holding period yield, assuming a 360-day year. Synonyms: CD equivalent yield
The relationship between the price of the underlying and an option’s exercise price.
Money-weighted rate of return
The internal rate of return on a portfolio, taking account of all cash flows.
To systematically keep watch over investor circumstances (including wealth and constraints), market and economic changes, and the portfolio itself so that the client’s current objectives and constraints continue to be satisfied.
Monitoring costs
Costs borne by owners to monitor the management of the company (e.g., board of director expenses).
Monte Carlo simulation
A methodology involving the use of a computer to find approximate solutions to complex problems.
Monte Carlo simulation method
An approach to estimating VAR that produces random outcomes to examine what might happen if a particular risk is faced. This method is widely used in the sciences as well as in business to study a variety of problems.
Monoline bond insurer
A Triple-A-rated company that guarantees that all interest and principal payments on a bond will be paid as scheduled and that participates in no other line of insurance business.
Moral obligation bond
A revenue bond which, in addition to its primary source of security, possesses a structure whereby an issuer pledges to make up shortfalls in a debt service reserve fund, subject to legislative appropriation. While the issuer does not have a legal obligation to make such a payment, the failure of the issuer to honor the moral pledge would have negative consequences for its creditworthiness.
Mortality risk 
The risk of loss of human capital in the event of premature death.
A regression assumption violation that occurs when two or more independent variables (or combinations of independent variables) are highly but not perfectly correlated with each other.
Multifactor model
A model that explains a variable in terms of the values of a set of factors.
Multifactor model technique 
With respect to construction of an indexed portfolio, a technique that attempts to match the primary risk exposures of the indexed portfolio to those of the index.
Multiperiod Sharpe ratio 
A Sharpe ratio based on the investment’s multiperiod wealth in excess of the wealth generated by the risk-free investment.
Multiple linear regression
Linear regression involving two or more independent variables.
Multiple linear regression model
A linear regression model with two or more independent variables.
Multiple R
The correlation between the actual and forecasted values of the dependent variable in a regression.
Multiplication rule for probabilities
The rule that the joint probability of events A and B equals the probability of A given B times the probability of B.
Multi-step format
With respect to the format of the income statement, a format that presents a subtotal for gross profit (revenue minus cost of goods sold).
Multivariate distribution
A probability distribution that specifies the probabilities for a group of related random variables.
Multivariate normal distribution
A probability distribution for a group of random variables that is completely defined by the means and variances of the variables plus all the correlations between pairs of the variables.
Mutually exclusive events
Events such that only one can occur at a time.
Mutually exclusive projects
Mutually exclusive projects compete directly with each other. For example, if Projects A and B are mutually exclusive, you can choose A or B, but you cannot choose both.
With respect to insurance companies, companies that are owned by their policyholders, who share in the company’s surplus earnings.
A legal instrument that creates a lien upon real estate securing the payment of a specific debt.
Mortgage banker
An entity that originates mortgage loans, sells them to investors and services the loans.
Mortgage loan
A loan secured by a mortgage.
Mortgage pass-through security A
debt instrument representing a direct interest in a pool of mortgage loans. The pass-through issuer or servicer collects the payments on the loans in the pool and "passes through" the principal and interest to the security holders on a pro rata basis.
Mortgage revenue bond
A security issued by a state, certain agencies or authorities, or a local government to make or purchase loans (including mortgages or other owner-financing) with respect to single-family or multifamily residences.
Mortgage-backed bonds or securities (MBS)
Mortgage-backed securities, called MBS are bonds or notes backed by mortgages on residential or commercial properties—an investor is purchasing an interest in pools of loans or other financial assets. As the underlying loans are paid off by the borrowers, the investors in MBS receive payments of interest and principal over time. The MBS market is for institutional investors and is not suitable for individual investors.
Municipal Securities Rulemaking Board
Municipal bond
A bond issued by a state or local governmental unit.
Municipal Securities Rulemaking Board (MSRB)
An independent self-regulatory organization established by the Securities Acts Amendments of 1975, which is charged with primary rulemaking authority over dealers, dealer banks and brokers in municipal securities. Its 15 members are divided into three categories—securities firms representatives, bank dealer representatives and public members—each category having equal representation on the Board. The MSRB also collects and disseminates market information, operating the Electronic Municipal Market Access (EMMA) website,, which is the official repository for municipal issuers' continuing disclosure documents, promoting transparency in the municipal market.
Murabahah Fund
"Murabahah" is a specific kind of sale where commodities are sold on a cost-plus basis. This kind of sale has been adopted by the contemporary Islamic banks and financial institutions as a mode of financing. They purchase the commodity for the benefit of their clients, then sell it to them on the basis of deferred payment at an agreed margin of profit added to the cost. If a fund is created to undertake this kind of sale, it should be a closed-end fund and its units cannot be negotiable in a secondary market. The reason is that in the Murabahah, as undertaken by the present financial institutions, the commodities are sold to the clients immediately after their purchase from the original supplier, while the price being on deferred payment basis becomes a debt payable by the client.
Mutual fund (or open-end fund)
Investment companies that invest pooled cash of many investors to meet the fund’s stated investment objective. Mutual funds stand ready to sell and redeem their shares at any time at the fund’s current net asset value: total fund assets divided by shares outstanding.
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