Definition of Standard & Poor’s Composite Index

Standard & Poor’s Composite Index

index of the investment performance of a portfolio of 500 large stocks. Also called the
S&P 500.

Arms index

Also known as a trading index (TRIN)= (number of advancing issues)/ (number of declining
issues) (Total up volume )/ (total down volume). An advance/decline market indicator. Less than 1.0 indicates
bullish demand, while above 1.0 is bearish. The index often is smoothed with a simple moving average.

Bond indexing

Designing a portfolio so that its performance will match the performance of some bond index.

Buying the index

Purchasing the stocks in the S&P 500 in the same proportion as the index to achieve the
same return.

Committee, AIMR Performance Presentation Standards Implementation Committee

The Association for Investment Management and Research (AIMR)'s Performance Presentation standards Implementation
Committee is charged with the responsibility to interpret, revise and update the AIMR Performance
Presentation standards (AIMR-PPS(TM)) for portfolio performance presentations.

Consumer Price Index (CPI)

The CPI, as it is called, measures the prices of consumer goods and services and is a
measure of the pace of U.S. inflation. The U.S.Department of Labor publishes the CPI very month.

EAFE index

The European, Australian, and Far East stock index, computed by Morgan Stanley.

Enhanced indexing

Also called indexing plus, an indexing strategy whose objective is to exceed or replicate
the total return performance of some predetermined index.

Gold exchange standard

A system of fixing exchange rates adopted in the Bretton Woods agreement. It
involved the U.S. pegging the dollar to gold and other countries pegging their currencies to the dollar.

Gold standard

An international monetary system in which currencies are defined in terms of their gold
content and payment imbalances between countries are settled in gold. It was in effect from about 1870-1914.

Index and Option Market (IOM)

A division of the CME established in 1982 for trading stock index
products and options. Related: Chicago Mercantile Exchange (CME).

Index arbitrage

An investment/trading strategy that exploits divergences between actual and theoretical
futures prices.

Index fund

Investment fund designed to match the returns on a stockmarket index.

Index model

A model of stock returns using a market index such as the S&P 500 to represent common or
systematic risk factors.

Index option

A call or put option based on a stock market index.

Index warrant

A stock index option issued by either a corporate or sovereign entity as part of a security
offering, and guaranteed by an option clearing corporation.

Indexed bond

Bond whose payments are linked to an index, e.g. the consumer price index.

Indexing

A passive instrument strategy consisting of the construction of a portfolio of stocks designed to
track the total return performance of an index of stocks.

Jensen index

An index that uses the capital asset pricing model to determine whether a money manager
outperformed a market index. The "alpha" of an investment or investment manager.

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.

Optimization approach to indexing

An approach to indexing which seeks to Optimize some objective, such
as to maximize the portfolio yield, to maximize convexity, or to maximize expected total returns.

Profitability index

The present value of the future cash flows divided by the initial investment. Also called
the benefit-cost ratio.

Pure index fund

A portfolio that is managed so as to perfectly replicate the performance of the market portfolio.

Risk indexes

Categories of risk used to calculate fundamental beta, including (1) market variability, (2)
earnings variability, (3) low valuation, (4) immaturity and smallness, (5) growth orientation, and (6) financial risk.

Single index model

A model of stock returns that decomposes influences on returns into a systematic factor,
as measured by the return on the broad market index, and firm specific factors.

Single-index model

Related: market model

Standard deviation

The square root of the variance. A measure of dispersion of a set of data from their mean.

Standard error

In statistics, a measure of the possible error in an estimate.

Standardized normal distribution

A normal distribution with a mean of 0 and a standard deviation of 1.

Standardized value

Also called the normal deviate, the distance of one data point from the mean, divided by
the standard deviation of the distribution.

Statement of Financial Accounting Standards No. 8

This is a currency translation standard previously in
use by U.S. accounting firms. See: Statement of Accounting standards No. 52.

Statement of Financial Accounting Standards No. 52

This is the currency translation standard currently
used by U.S. firms. It mandates the use of the current rate method. See: Statement of Financial Accounting
standards No. 8.

Stock index option

An option in which the underlying is a common stock index.

Stratified equity indexing

A method of constructing a replicating portfolio in which the stocks in the index
are classified into stratum, and each stratum is represented in the portfolio.

Stratified sampling approach to indexing

An approach in which the index is divided into cells, each
representing a different characteristic of the index, such as duration or maturity.

Stratified sampling bond indexing

A method of bond indexing that divides the index into cells, each cell
representing a different characteristic, and that buys bonds to match those characteristics.

Strike index

For a stock index option, the index value at which the buyer of the option can buy or sell the
underlying stock index. The strike index is converted to a dollar value by multiplying by the option's contract multiple.
Related: strike price

Treynor Index

A measure of the excess return per unit of risk, where excess return is defined as the
difference between the portfolio's return and the risk-free rate of return over the same evaluation period and
where the unit of risk is the portfolio's beta.

Profitability index

See cash value added.

Standard costs

A budget cost for materials and labour used for decision-making, usually expressed as a per unit cost that is applied to standard quantities from a bill of materials and to standard times from a
routing.

Profitability Index

A method for determining the profitability of an investment. It is
calculated by dividing the present value of the future net cash flows
by the initial cash investment.

Standard Deviation

A statistical term that measures the dispersion of a variable
around its expected value. The standard deviation is often used as
a measure of risk when applied to a return on an investment.

Cost Accounting Standards Board (CASB)

a body established by Congress in 1970 to promulgate cost accounting
standards for defense contractors and federal agencies; disbanded
in 1980 and reestablished in 1988; it previously issued
pronouncements still carry the weight of law for those
organizations within its jurisdiction

ethical standard

a standard representing beliefs about moral
and immoral behaviors

expected standard

standard set at a level that reflects what
is actually expected to occur in the future period; it anticipates
future waste and inefficiencies and allows for them;
is of limited value for control and performance evaluation purposes

ideal standard

a standard that provides for no inefficiencies
of any type; impossible to attain on a continuous basis

perfection standard

see ideal standard

practical standard

a standard that can be reached or slightly
exceeded with reasonable effort by workers; it allows for
normal, unavoidable time problems or delays and for
worker breaks; it is often believed to be most effective in
inducing the best performance from workers, since such
a standard represents an attainable challenge

present value index

see profitability index

profitability index (Pl)

a ratio that compares the present value of net cash flows to the present value of the net investment

standard

a model or budget against which actual results are
compared and evaluated; a benchmark or norm used for
planning and control purposes

standard cost

a budgeted or estimated cost to manufacture
a single unit of product or perform a single service

standard cost card

a document that summarizes the direct
material, direct labor, and overhead standard quantities and
prices needed to complete one unit of product

standard cost system

a valuation method that uses predetermined
norms for direct material, direct labor, and overhead
to assign costs to the various inventory accounts and
Cost of Goods Sold

standard deviation

the measure of variability of data around
the average (or mean) value of the data

standard error of the estimate

a measure of dispersion that reflects the average difference between actual observations and expected results provided by a regression line

standard overhead application rate

a predetermined overhead rate used in a standard cost system; it can be a separate variable or fixed rate or a combined overhead rate

standard quantity allowed

the quantity of input (in hours or some other cost driver measurement) required at standard for the output actually achieved for the period

Standard deviation

A measure of the variation in a distribution, equal to the
square root of the arithmetic mean of the squares of the deviations from the
arithmetic mean; the square root of the variance.

Standard cost

A predetermined cost that is based on original engineering designs and
production methodologies. It is frequently used to determine the degree of additional
actual costs incurred above the standard rates.

market index

Measure of the investment performance of the overall market.

profitability index

Ratio of net present value to initial investment.

standard deviation

Square root of variance. Another measure of volatility.

Consumer Price Index (CPI)

An index calculated by tracking the cost of a typical bundle of consumer goods and services over time. It is commonly used to measure inflation.

Gold Standard

A fixed exchange rate system in which a currency is directly convertible into gold.

Index

A series of numbers measuring percentage changes over time from a base period. The index number for the base period is by convention set equal to 100.
indexing
Linking money payments to a price index to hold the real value of those money payments constant.

Price Index

A measure of the price level calculated by comparing the cost of a bundle of goods and services in a given year with its cost in a base year. See also index.

Contract Work Hours and Safety Standards Act

A federal Act requiring federal contractors to pay overtime for hours worked exceeding 40 per week.

Fair Labor Standards Act of 1938

A federal Act creating standards of overtime
pay, minimum wages, and payroll recordkeeping.

Part standardization

The planned reduction of similar parts through the standardization
of parts among multiple products.

Standard containers

Common-sized containers that are used to efficiently move,
store, and count inventory.

index

An index is a statistical measure of a market based on the performance of a sample of securities in that market. For example, the S&P/TSX composite index reflects the performance of the most actively traded stocks on The Toronto Stock Exchange.

index funds

Mutual funds that aim to track the performance of a specific stock or bond index. This process is also referred to as indexing and passive management.

Index Portfolio Rebalancing Service (IPRS)

index Portfolio Rebalancing Service (IPRS) is a comprehensive investment service that can help increase potential returns while reducing volatility. Several portfolios are available, each with its own strategic balance of index Funds. IPRS maintains your personal asset allocation by monitoring and rebalancing your portfolio semi-annually.

Indexation

The adjustment of benefits to compensate for the effects of inflation.

market portfolio

Portfolio of all assets in the economy. In practice a broad stock market index, such as the standard & poor's composite, is used to represent the market.

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