We thank the students in Tucker Balch’s online course Computational Investing, Part 1, for their assistance in compiling this glossary.
Alpha: A measure of an investment style’s incremental return relative to simply holding a diversified portfolio. All active management, such as hedge funds, strives for “positive alpha.”
Arbitrage: Buying a near-identical asset in one market and selling it in a different market at a higher price. This opportunity to profit will usually be exploited by profit-seeking investors, who, through their buying and selling, will “arbitrage away” price disparities.
(Arithmetical) Average rate of return: An asset’s return on investment averaged over multiple periods. If the S&P 500 returned 10 percent 3 years ...