Negative arbitrage is the opportunity lost when municipal bond issuers assume proceeds from debt offerings and then invest that money for a period of time (ideally in a safe investment vehicle) until the money is used to fund a project, or to repay investors. The lost opportunity occurs when the money is reinvested and the debt issuer earns a rate or return that is lower than what must actually be paid back to the debt holders.
Month: August 2020
Founded in 1870, the New York Board of Trade (NYBOT) is a commodity futures exchange located in New York. In 2006, it became part of the Intercontinental Exchange (ICE).
A non-sampling error is a statistical term that refers to an error that results during data collection, causing the data to differ from the true values. A non-sampling error differs from a sampling error. A sampling error is limited to any differences between sample values and universe values that arise because the sample size was limited. (The entire universe cannot be sampled in a survey or a census.)
Nonlinearity is a term used in statistics to describe a situation where there is not a straight-line or direct relationship between an independent variable and a dependent variable. In a nonlinear relationship, the output does not change in direct proportion to a change in any of the inputs.
Additional Child Tax Credit
The Additional Child Tax Credit was the refundable portion of the Child Tax Credit. It could be claimed by families who owe the IRS less than their qualified Child Tax Credit amount. Since the Child Tax Credit was non-refundable, the Additional Child Tax Credit refunded the unused portion of the Child Tax Credit to the taxpayer. This provision was eliminated from 2018 to 2025 by the 2017 tax bill. However, the new form of the Child Tax Credit includes some provision for refundable credits.
A distressed sale occurs when a property, stock, or another asset must be sold quickly. Distressed sales often result in a financial loss for the seller who, for reasons of economic duress, must accept a lower price. The proceeds from these assets are most often used to pay debts, medical expenses, or other emergencies.
Vertical equity is a method of collecting income tax in which the taxes paid increase with the amount of earned income. The driving principle behind vertical equity is that those who have the ability to pay more taxes should contribute more than those who are not.
A central counterparty clearing house (CCP) is an entity that helps facilitate trading in various European derivatives and equities markets. Typically operated by the major banks in each country, CCPs strive to introduce efficiency and stability into various financial markets. It reduces counterparty, operational, settlement, market, legal, and default risk for traders.
Willie Sutton Rule
The Willie Sutton Rule is based on a statement by notorious American bank robber Willie Sutton, who, when asked by a reporter about why he stole from banks, answered: “Because that’s where the money is.”
High Minus Low (HML)
High Minus Low (HML), also referred to as the value premium, is one of three factors used in the Fama-French three-factor model. HML accounts for the spread in returns between value stocks and growth stocks and argues that companies with high book-to-market ratios, also known as value stocks, outperform those with lower book-to-market values, known as growth stocks.