03 - Risk and Return

  1. Holding-period Return (HPR)
    Rate of return over a given investment period.
  2. Arithmetic Average
    The sum of returns in each period divided by the number of periods.
  3. Geometric Average
    The single per-period return that gives the same cumulative performance as the sequence of actual returns.
  4. Dollar-weighted Average Return
    The internal rate of return on an investment.
  5. Annual Percentage Rate
    An approximation of the rate of return earned in a year.
  6. Effective Annual Rate
    The actual rate of return earned in a year.
  7. Scenario Analysis
    Process of devising a list of possible economic scenarios and specifying the likelihood of each one, as well as the HPR that will be realised in each case.
  8. Probability Distribution
    List of possible outcomes with associated probabilities.
  9. Expected Return
    The mean value of the distribution of HPR.
  10. Value at Risk (VaR)
    Measure of the downside risk (loss that will be suffered given an extreme adverse price change).
  11. Kurtosis
    Measure of the fatness of the tails of a probability distribution (indicates likelihood of extreme outcomes).
  12. Skew
    Measure of the asymmetry.
  13. Risk-free Rate
    The rate of return that can be earned with certainty.
  14. Risk Premium
    An expected return in excess of that on risk-free securities.
  15. Excess Return
    Rate of return in excess of the risk-free rate.
  16. Risk Aversion
    Reluctance to accept risk.
  17. Sharpe (Reward-to-volatility measure)
    Ratio of portfolio risk premium to standard deviation.
  18. Mean-variance Analysis
    Ranking portfolios by their Sharpe measures.
  19. Inflation Rate
    The rate at which the general level of prices for goods and services is rising.
  20. Nominal Interest Rate
    The interest rate in terms of nominal (not adjusted for purchasing power) dollars.
  21. Real Interest Rate
    The excess of the interest rate over the inflation rate.

    The growth rate of purchasing power derived from an investment.
  22. Asset Allocation
    Allocation of an investment portfolio across broad asset classes.
  23. Complete Portfolio
    The entire portfolio including risky and risk-free assets.
  24. Capital Allocation Line (CAL)
    Plot of risk-return combinations available by varying portfolio allocation between a risk-free asset and a risky portfolio.
  25. Passive Strategy
    Investment policy that avoids security analysis.
  26. Capital Market Line
    The capital allocation line (CAL) using the market index portfolio as the risky asset.
Card Set
03 - Risk and Return
221 - Risk and Return