WomensFinance.com

Glossary : M

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Macaulay duration: The weighted-average term to maturity of the cash flows from the bond, where the weights are the present value of the cash flow divided by the price.
Magic of diversification: The effective reduction of risk (variance) of a portfolio, achieved without reduction to expected returns through the combination of assets with low or negative correlations (covariances). Related: Markowitz diversification
Mail float: Refers to the part of the collection and disbursement process where checks are trapped in the postal system.
Maintenance margin requirement: A sum, usually smaller than but part of the original margin, which must be maintained on deposit at all times. If a customer's equity in any futures position drops to, or under, the maintenance margin level, the broker must issue a margin call for the amount at money required to restore the customer's equity in the account to the original margin level. Related: margin, margin call.
Majority voting: Voting system under which each director is voted upon separately. Related: cumulative voting.
Make a market: A dealer is said to make a market when he quotes bid and offered prices at which he stands ready to buy and sell.
Making delivery: Refers to the seller's actually turning over to the buyer the assets agreed upon in a forward contract.
Managed float: Also known as "dirty" float, this is a system of floating exchange rates with central bank intervention to reduce currency fluctuations.
Management buyout (M.B.O.): Leveraged buyout whereby the acquiring group is led by the firm's management.
Management/closely held shares: Percentage of shares held by persons closely related to a company, as defined by the Securities and Exchange Commission. Part of these percentages often is included in Institutional Holdings -- making the combined total of these percentages over 100. There is overlap as institutions sometimes acquire enough stock to be considered by the S.E.C. to be closely allied to the company.
Management fee: An investment advisory fee charged by the financial advisor to a fund based on the fund's average assets, but sometimes determined on a sliding scale that declines as the dollar amount of the fund increases.
Management's discussion: A report from management to the shareholders that accompanies the firm's financial statements in the annual report. This report explains the period's financial results and enables management to discuss other ideas that may not be apparent in the financial statements in the annual report.
Managerial decisions: Decisions concerning the operation of the firm, such as the choice of firm size, firm growth rates, and employee compensation.
Mandatory redemption schedule: Schedule according to which sinking fund payments must be made.
Manufactured housing securities (M.H.S.s): Loans on manufactured homes - that is, factory-built or prefabricated housing, including mobile homes.
Margin: This allows investors to buy securities by borrowing money from a broker. The margin is the difference between the market value of a stock and the loan a broker makes. Related: security deposit (initial).
Margin account (Stocks): A leverageable account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin rules are federally regulated, but margin requirements and interest may vary among broker/dealers.
Marginal: Incremental.
Marginal tax rate: The tax rate that would have to be paid on any additional dollars of taxable income earned.
Margin call: A demand for additional funds because of adverse price movement. Maintenance margin requirement, security deposit maintenance
Margin of safety: With respect to working capital management, the difference between 1) the amount of long-term financing, and 2) the sum of fixed assets and the permanent component of current assets.
Margin requirement (Options): The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position valuation and reasonably foreseeable intra-day price changes.
Mark-to-market: The process whereby the book value or collateral value of a security is adjusted to reflect current market value.
Marked-to-market: An arrangement whereby the profits or losses on a futures contract are settled each day.
Market: Usually refers to the equity market. "The market went down today" meaning that the value of the stock marketdropped that day.
Marketability: A negotiable security is said to have good marketability if there is an active secondary market in which it can easily be resold.
Market-book ratio: Market price of a share divided by book value per share.
Market capitalization: The total dollar value of all outstanding shares. Computed as shares times current market price. It is a measure of corporate size.
Market capitalization rate: Expected return on a security. The market-consensus estimate of the appropriate discount rate for a firm's cash flow.
Market clearing: Total demand for loans by borrowers equals total supply of loans from lenders. The market, any market, clears at the equilibrium rate of interest or price.
Market conversion price: Also called conversion parity price, the price that an investor effectively pays for common stock by purchasing a convertible security and then exercising the conversion option. This price is equal to the market price of the convertible security divided by the conversion ratio.
Market cycle: The period between the 2 latest highs or lows of the S&P 500, showing net performance of a fund through both an up and a down market. A market cycle is complete when the S&P is 15% below the highest point or 15% above the lowest point (ending a down market).
Marketed claims: Claims that can be bought and sold in financial markets, such as those of stockholders and bondholders.
Market-if-touched (M.I.T.): A price order, below market if a buy or above market if a sell, that automatically becomes a market order if the specified price is reached.
Market impact costs: Also called price impact costs, the result of a bid/ask spread and a dealer's price concession.
Market maker: Used in the context of general equities. One who maintains firm bid and offer prices in a given security by standing ready to buy or sell round lots at publicly quoted prices. See: agent, dealer, specialist.
Market model: This relationship is sometimes called the single-index model. The market model says that the return on a security depends on the return on the market portfolio and the extent of the security's responsiveness as measured, by beta. In addition, the return will also depend on conditions that are unique to the firm. Graphically, the market model can be depicted as a line fitted to a plot of asset returns against returns on the market portfolio.
Market order: Used in the context of general equities. Order to buy or sell a stated amount of a security at the most advantageous price obtainable after the order is represented in the trading crowd. See: limit order.
Market order go-along/participating: Used for listed equity securities. See: Percentage order.
Market overhang: The theory that in certain situations, institutions wish to sell their shares but postpone the share sales because large orders under current market conditions would drive down the share price and that the consequent threat of securities sales will tend to retard the rate of share price appreciation. Support for this theory is largely anecdotal.
Market penetration/share: Used in the context of general equities. Percent of trading volume in a stock that a particular market-maker trades.
Marketplace price efficiency: The degree to which the prices of assets reflect the available marketplace information. Marketplace price efficiency is sometimes estimated as the difficulty faced by active management of earning a greater return than passive management would, after adjusting for the risk associated with a strategy and the transactions costs associated with implementing a strategy.
Market portfolio: A portfolio consisting of all assets available to investors, with each asset held in proportion to its market value relative to the total market value of all assets.
Market price of risk: A measure of the extra return, or risk premium, that investors demand to bear risk. The reward-to-risk ratio of the market portfolio.
Market prices: The amount of money that a willing buyer pays to acquire something from a willing seller, when a buyer and seller are independent and when such an exchange is motivated by only commercial consideration.
Market return: The return on the market portfolio.
Market risk: Risk that cannot be diversified away. Related: systematic risk
Market sectors: The classifications of bonds by issuer characteristics, such as state government, corporate, or utility.
Market segmentation theory or preferred habitat theory: A biased expectations theory that asserts that the shape of the yield curve is determined by the supply of and demand for securities within each maturity sector.
Market timer: A money manager who assumes he or she can forecast when the stock market will go up and down.
Market timing: Asset allocation in which the investment in the equity market is increased if one forecasts that the equity market will outperform T-bills and decrease when market is anticipated to underpreform.
Market timing costs: Costs that arise from price movement of the stock during the time of the transaction which is attributed to other activity in the stock.
Market value: (1) The price at which a security is trading and could presumably be purchased or sold. (2) The value investors believe a firm is worth; calculated by multiplying the number of shares outstanding by the current market price of a firm's shares.
Market value ratios: Ratios that relate the market price of the firm's common stock to selected financial statement items.
Market value-weighted index: An index of a group of securities computed by calculating a weighted average of the returns on each security in the index, with the weights proportional to outstanding market value.

Markowitz, Harry: Nobel laureate in economics. Father of modern portfolio theory.
Markowitz diversification: A strategy that seeks to combine assets a portfolio with returns that are less than perfectly positively correlated, in an effort to lower portfolio risk (variance) without sacrificing return. Related: naive diversification
Markowitz efficient frontier: The graphical depiction of the Markowitz efficient set of portfolios representing the boundary of the set of feasible portfolios that have the maximum return for a given level of risk. Any portfolios above the frontier cannot be achieved. Any below the frontier are dominated by Markowitz efficient portfolios.
Markowitz efficient portfolio: Also called a mean-variance efficient portfolio, a portfolio that has the highest expected return at a given level of risk.
Markowitz efficient set of portfolios: The collection of all efficient portfolios, graphically referred to as the Markowitz efficient frontier.
Master limited partnership (M.L.P.): A publicly traded limited partnership.
Matador market: The foreign market in Spain.
Match fund: A bank is said to match fund a loan or other assets when it does so by buying (taking) a deposit of the same maturity. The term is commonly used in the Euromarket.
Matched book: A bank runs a matched book when the distribution of maturities of its assets and liabilities are equal.
Matched orders: Used for listed equity securities. Participate in equal amounts of a trade at a certain price, particularly when two parties have the same level of priority on the exchange floor (this requires standing in the trading crowd).
Matched sale transaction: Mainly applies to convertible securities. Procedure whereby the Federal Reserve Bank of New York sells government securities to a non-bank dealer against payment in federal funds. The agreement requires the dealer to sell the securities back by a specified date, which ranges from one to 15 days. The Fed pays the dealer a rate of interest equal to the discount rate. These transactions, also called reverse repurchase agreements, decrease the money supply for temporary periods by reducing dealer's bank balances and thus excess reserves.
Matching concept: The accounting principle that requires the recognition of all costs that are associated with the generation of the revenue reported in the income statement.
Materials requirement planning: Computer-based systems that plan backward from the production schedule to make purchases in order to manage inventory levels.
Mathematical programming: An operations research technique that solves problems in which an optimal value is sought subject to specified constraints. Mathematical programming models include linear programming, quadratic programming, and dynamic programming.
Mature: To cease to exist; to expire.
Maturity: For a bond, the date on which the principal is required to be repaid. In an interest rate swap, the date that the swap stops accruing interest.
Maturity date: Usually used for bonds. Date that the bond finishes and is paid off. Date on which the principal amount of a note, draft, acceptance, bond, or other debt instrument becomes due and payable.
Maturity factoring: Factoring arrangement that provides collection and insurance of accounts receivable.
Maturity phase: A phase of company development in which earnings continue to grow at the rate of the general economy. Related: Three-phase DDM.

Maturity spread: The spread between any two maturity sectors of the bond market.
Maturity value: Related: par value.
Maximum price fluctuation: The maximum amount the contract price can change, up or down, during one trading session, as fixed by exchange rules in the contract specification. Related: limit price.
May expand: Used in the context of general equities. Warning that the size of the order/total may be increased. See: "more behind it."
M.B.S. depository: A book-entry depository for G.N.M.A. securities. The depository was initially operated by M.B.S.C.C. and is currently in the process of becoming a separately incorporated, participant-owned, limited-purpose trust company organized under the State of New York Banking Law.
M.B.S. servicing: The requirement that the mortgage servicer maintain payment of the full amount of contractually due principal and interest payments whether or not actually collected.
Mean: The expected value of a random variable Arithmetic average of a sample.
Mean of the sample: The arithmetic average; that is, the sum of the observations divided by the number of observations.
Mean-variance analysis: Evaluation of risky prospects based on the expected value and variance of possible outcomes.
Mean-variance criterion: The selection of portfolios based on the means and variances of their returns. The choice of the higher expected return portfolio for a given level of variance or the lower variance portfolio for a given expected return.
Mean-variance efficient portfolio: Related: Markowitz efficient portfolio
Measurement error: Errors in measuring an explanatory variable in a regression that leads to biases in estimated parameters.
Medium-term note: A corporate debt instrument that is continuously offered to investors over a period of time by an agent of the issuer. Investors can select from the following maturity bands: 9 months to 1 year, more than 1 year to 18 months, more than 18 months to 2 years, etc., up to 30 years.
Member firm: Used for listed equity securities. Brokerage firm that has at least one membership on a major stock exchange even though, by exchange rules, the membership in the name of an employee and not of the firm itself.
Membership or a seat on the exchange: A limited number of exchange positions that enable the holder to trade for the holder's own accounts and charge clients for the execution of trades for their accounts. Related: member firm.
Menu: Used in the context of general equities. Hierarchy of choices concerning price and volume of bids or offers proposed to a customer (e.g. Menu of offerings to a customer buyer - a) 10m @ 24 1/4; b) 25m @ 24 1/2; or c) 50m @ 24 3/4).
Merchandise: All movable goods such as cars, textiles, appliances, etc. and 'f.o.b.' means free on board.
Merc, the: Chicago Mercantile Exchange.
Merchant bank: A British term for a bank that specializes not in lending out its own funds, but in providing various financial services such as accepting bills arising out of trade, underwriting new issues, and providing advice on acquisitions, mergers, foreign exchange, portfolio management, etc.
Merger: (1) Acquisition in which all assets and liabilities are absorbed by the buyer. (2) More generally, any combination of two companies. The firm's activity in this respect is sometimes called M&A (Merger and Acquisition)
Mezzanine financing: The next stage of financing that follows venture capital financing.
Mid-cap SPRDs: This is the same as a SPRD except the index it tracks is Standard&Poor's Mid-cap 400. This SPRD also trades on the AMEX, under the symbol MDY.
Miller, Merton: Nobel Laureate and coauthor of the famous Miller-Modigliani theorems. Finance professor at the University of Chicago.
Mimic: An imitation that sends a false signal.
Minimum price fluctuation: Smallest increment of price movement possible in trading a given contract. Also called point or tick.
Minimum purchases: For mutual funds, the amount required to open a new account (Minimum Initial Purchase) or to deposit into an existing account (Minimum Additional Purchase). These minimums may be lowered for buyers participating in an automatic purchase plan
Minimum-variance frontier: Graph of the lowest possible portfolio variance that is attainable for a given portfolio expected return.
Minimum-variance portfolio: The portfolio of risky assets with lowest variance.
Minority interest: An outside ownership interest in a subsidiary that is consolidated with the parent for financial reporting purposes.
Mismatch bond: Floating rate note whose interest rate is reset at more frequent intervals than the rollover period (e.g. a note whose payments are set quarterly on the basis of the one-year interest rate).
Miss the price/market: Used for listed equity securities. 1) Have an order in hand but fail to execute a transaction on terms favorable to a customer and, thus, be negligent as a broker; 2) receive an order just after a print has transpired.
Mixed bag: Used in the context of general equities. Group of stocks which consists of some which are up, down, and neutral.
Modeling: The process of creating a depiction of reality, such as a graph, picture, or mathematical representation.
Modern portfolio theory: Principals underlying the analysis and evaluation of rational portfolio choices based on risk-return trade-offs and efficient diversification.
Modified duration: The ratio of Macaulay duration to (1 + y), where y = the bond yield. Modified duration is inversely related to the approximate percentage change in price for a given change in yield.
Modified pass-throughs: Agency pass-throughs that guarantee (1) timely interest payments and (2) principal payments as collected, but no later than a specified time after they are due. Related: fully modified pass-throughs
Modigliani and Miller Proposition I: A proposition by Modigliani and Miller which states that a firm cannot change the total value of its outstanding securities by changing its capital structure proportions. Also called the irrelevance proposition.
Modigliani and Miller Proposition II: A proposition by Modigliani and Miller which states that the cost of equity is a linear function of the firm's debt/equity-ratio.
Monetary gold: Gold held by governmental authorities as a financial asset.
Monetary policy: Actions taken by the Board of Governors of the Federal Reserve System to influence the money supply or interest rates.
Monetary/non-monetary method: Under this translation method, monetary items (e.g. cash, accounts payable and receivable, and long-term debt) are translated at the current rate while non-monetary items (e.g. inventory, fixed assets, and long-term investments) are translated at historical rates.
Money base: Composed of currency and coins outside the banking system plus liabilities to the deposit money banks.
Money center banks: Banks that raise most of their funds from the domestic and international money markets , relying less on depositors for funds.
Money management: Related: Investment management.
Money manager: Related: Investment manager.
Money market: Money markets are for borrowing and lending money for three years or less. The securities in a money market can be U.S.government bonds, Treasury bills and commercial paper from banks and companies.
Money market demand account (M.M.D.A.): An account that pays interest based on short-term interest rates.
Money market fund: A mutual fund that invests only in short term securities, such as bankers' acceptances, commercial paper, repurchase agreements and government bills. The net asset value per share is maintained at $1.00. Such funds are not federally insured, although the portfolio may consist of guaranteed securities and/or the fund may have private insurance protection.
Money market hedge: The use of borrowing and lending transactions in foreign currencies to lock in the home currency value of a foreign currency transaction.
Money market notes: Publicly traded issues that may be collateralized by mortgages and Mortgage Backed Securities (M.B.S.s).
Money purchase plan: A defined benefit contribution plan in which the participant contributes some part and the firm contributes at the same or a different rate. Also called an individual account plan.
Money rate of return: Annual money return as a percentage of asset value.
Money supply: M1-A: Currency plus demand deposits; M1-B: M1-A plus other checkable deposits.; M2: M1-B plus overnight repos, money market funds, savings, and small (less than $100M) time deposits.; M3: M-2 plus large time deposits and term repos.; L: M-3 plus other liquid assets.
Monitor: To seek information about an agent's behavior; a device that provides such information.
Monte Carlo simulation: An analytical technique for solving a problem by performing a large number of trail runs, called simulations, and inferring a solution from the collective results of the trial runs. Method for calculating the probability distribution of possible outcomes.
Monthly income preferred security (M.I.P.): Preferred stock issued by a subsidiary located in a tax haven. The subsidiary relends the money to the parent.
Moral hazard: The risk that the existence of a contract will change the behavior of one or both parties to the contract, e.g. an insured firm will take fewer fire precautions.
"More behind it": Used in the context of general equities. More stock exists to be bought or sold by the same buyer or seller, respectively. Often, the buyer or seller does not disclose the full size of his buy or sell interest as not to affect the market adversely. See: May expand.
Morgan Stanley Capital International (M.S.C.I.): This firm publishes a number of well known benchmarks, such as the M.S.C.I. World Index.
Mortality tables: Tables of probability that individuals of various ages will die within one year.
Mortgage: A loan secured by the collateral of some specified real estate property which obliges the borrower to make a predetermined series of payments.
Mortgage bond: A bond in which the issuer has granted the bondholders a lien against the pledged assets. See: Collateral trust bonds
Mortgage duration: A modification of standard duration to account for the impact on duration of M.B.S.s of changes in prepayment speed resulting from changes in interest rates. Two factors are employed: one that reflects the impact of changes in prepayment speed or price.
Mortgage pass-through security: Also called a passthrough, a security created when one or more mortgage holders form a collection (pool) of mortgages and sells shares or participation certificates in the pool. The cash flow from the collateral pool is "passed through" to the security holder as monthly payments of principal, interest, and prepayments. This is the predominant type of M.B.S. traded in the secondary market.
Mortgage pipeline: The period from the taking of applications from prospective mortgage borrowers to the marketing of the loans.
Mortgage-pipeline risk: The risk associated with taking applications from prospective mortgage borrowers who may opt to decline to accept a quoted mortgage rate within a certain grace period.
Mortgage rate: The interest rate on a mortgage loan.
Mortgage-Backed Securities Clearing Corporation (M.B.S.C.C.): A wholly owned subsidiary of the Midwest Stock Exchange that operates a clearing service for the comparison, netting, and margining of agency-guaranteed M.B.S.s transacted for forward delivery.
Mortgage-backed securities (M.B.S.s): Securities backed by a pool of mortgage loans.
Mortgagee: The lender of a loan secured by property.
Mortgager: The borrower of a loan secured by property.
Most distant futures contract: When several futures contracts are considered, the contract settling last. Related: nearby futures contract
Moving average: Used in charts and technical analysis, the average of security or commodity prices constructed in a period as short as a few days or as long as several years and showing trends for the latest interval. As each new variable is included in calculating the average, the last variable of the series is deleted.
Multicurrency clause: Such a clause on a Euro loan permits the borrower to switch from one currency to another currency on a rollover date.
Multicurrency loans: Gives the borrower the possibility of drawing a loan in different currencies.
Multifactor CAPM: A version of the capital asset pricing model derived by Robert Merton that includes extra-market sources of risk referred to as factors. Related: arbitrage pricing theory
Multifamily loans: Loans usually represented by conventional mortgages on multi-family rental apartments.
Multinational corporation (M.N.C.): A firm that operates in more than one country.

Multi-option financing facility: A syndicated confirmed credit line with attached options.
Multiperiod immunization: A portfolio strategy in which a portfolio is created that will be capable of satisfying more than one predetermined future liability regardless of interest rate changes.
Multiple-discriminant analysis (M.D.A.): Statistical technique for distinguishing between two groups on the basis of their observed characteristics.
Multiple-issuer pools: Under the GNMA-II program, pools formed through the aggregation of individual issuers' loan packages.
Multiple rates of return: More than one rate of return from the same project that make the net present value of the project equal to zero. This situation arises when the I.R.R. method is used for a project in which negative cash flows follow positive cash flows. For each sign change in the cash flows, there is a different rate of return.
Multiple regression: The estimated relationship between a dependent variable and more than one explanatory variable.
Multiples: Another name for price/earnings ratios.
Multirule system: A technical trading strategy that combines mechanical rules, such as the CRISMA (cumulative volume, relative strength, moving average) Trading System of Pruitt and White.
Municipal bond: State or local governments offer muni bonds or municipals, as they are called, to pay for special projects such as highways or sewers. The interest that investors receive is exempt from some income taxes.
Municipal notes: Short-term notes issued by municipalities in anticipation of tax receipts, proceeds from a bond issue, or other revenues.
Mutual fund: Mutual funds are pools of money that are managed by an investment company. They offer investors a variety of goals, depending on the fund and its investment charter. Some funds, for example, seek to generate income on a regular basis. Others seek to preserve an investor's money. Still others seek to invest in companies that are growing at a rapid pace. Funds can impose a sales charge, or load, on investors when they buy or sell shares. Many funds these days are no load and impose no sales charge. Mutual funds are investment companies regulated by the Investment Company Act of 1940. Related: open-end fund, closed-end fund.
Mutual fund theorem: A result associated with the C.A.P.M., asserting that investors will choose to invest their entire risky portfolio in a market-index or mutual fund.
Mutually exclusive investment decisions: Investment decisions in which the acceptance of a project precludes the acceptance of one or more alternative projects.
Mutual offset: A system, such as the arrangement between the Chicago Mercantile Exchange (C.M.E.) and Singapore International Monetary Exchange (S.I.M.E.X.), which allows trading positions established on one exchange to be offset or transferred on another exchange.

Glossary created by Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University.