A problem arising from the conflict of interested created by the separation of management from ownership (the stockholders) in a publicly owned company. Corporate governance mechanisms, such as boards of directors and the issuance of debt, are used in an attempt to reduce this conflict of interest. However, introducing debt into the picture creates yet another potential conflict of interest because there are three parties involved: owners, managers and lenders (bondholders), each with different goals. Taobiz explains Agency Cost Of Debt For example, managers may want to engage in risky actions they hope will benefit shareholders, who seek a high rate of return. Bondholders, who are typically interested in a safer investment, may want to place restrictions on the use of their money to reduce their risk. The costs resulting from these conflicts are known as the agency cost of debt.
The price level performance of a newly issued stock after its IPO. There is no standard ending time period that is considered, but after-market performance begins on the first day of trading on the exchange. Typically after-market performance will be measured through the lock-up period, anywhere from three to nine months after the IPO date. This allows for the market to "digest" the insider shares that might be sold quickly after the lock-up period ends. By looking at the after-market performance of all IPOs over a certain time period (as in a calendar year), analysts and investment bankers can determine the overall market demand for new issues, and possibly move up or delay a schedule IPO as a result. Taobiz explains After-Market Performance To the company management and employees, the after-market performance of the stock is vital. If the company can reach and sustain a higher market valuation than originally estimated by the underwriting syndicate in open market trading, equity funding will be much more affordable than other methods of raising capital. Investors should keep in mind that an IPO may only represents a small percentage of total shares outstanding (usually about 20%). The remaining bulk of shares can be used to raise capital down the road as the company looks to grow and enter new markets.
Trading after regular trading hours on the major exchanges. Also known as the "after-hours market". Taobiz explains After-Hours Trading - AHT This was once reserved for institutional investors, but now individuals may also trade after hours. Participation by market makers and electronic communication networks (ECNs) is voluntary and, as a result, this kind of trading may offer less liquidity than that done during normal hours of trading. If you are trading in pre-market or after-hours trading, you should always use a limit order.
The last transaction and final price of a security that is traded in the after-hours market. The after-hours market is generally more volatile than the regular market, but it can give investors an idea of what to expect at the start of trading the next day. Also referred to as "after-hours close". Taobiz explains After-Hours Market Close The percentage of change in the after-hours market is computed by comparing the after-hours close to the market close. If the last price in the market for ABC stock was $5 during regular market trading, this is the opening price in the after-hours market. If the after-hours market close was $10 due to a great earnings release after the market close, the increase expressed as a percentage would be 100%.
A sub-market of the London Stock Exchange that permits smaller companies to participate with greater regulatory flexibility than applies to the main market, including no set requirements for capitalization or the number of shares issued. The Alternative Investment Market is the London Stock Exchange's global market for smaller and growing companies. Taobiz explains Alternative Investment Market - AIM As of 2010, more than 3,000 international companies have joined the Alternative Investment Market (AIM) since its launch in 1995. AIM seeks to assist smaller and growing companies in raising growth capital. Early stage businesses, venture capital-backed companies and more established businesses may join AIM to help raise the capital necessary for expansion. The FTSE Group maintains three indexes for tracking the AIM: the FTSE AIM UK 50 Index, the FTSE AIM 100 Index and the FTSE AIM All-Share Index. AIM is owned by the London Stock Exchange Group.
An exchange-traded fund that invests in companies engaged in industries serving alternative energy production and research. Some companies found within alternative energy ETFs may only receive a portion of their revenues from alternative energy goods and services, while other (typically smaller) companies are wholly engaged in alternative or clean energy production. The underlying group of securities used to passively invest assets within these funds varies widely depending on the issuer. Some include many stocks while others have a narrower focus and are thus less diversified. Watch: Understanding ETF Taobiz explains Alternative Energy ETF ETFs focused on alternative energy stocks represent a strong "green" investment, but the space is still in the beginning stages of commercial viability. Investors should expect to see high volatility as certain processes and technology rise to the forefront while others prove to be unsuccessful. Alternative energy has two important tailwinds funding its growth: the limitation of the world's natural resources and higher demand by environmentally conscientious consumers. Examples of ETFs in this space would include stocks from solar energy companies and "clean" fossil fuel production corporations.
1. A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha. 2. The abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the capital asset pricing model (CAPM). Taobiz explains Alpha 1. Alpha is one of five technical risk ratios; the others are beta, standard deviation, R-squared, and the Sharpe ratio. These are all statistical measurements used in modern portfolio theory (MPT). All of these indicators are intended to help investors determine the risk-reward profile of a mutual fund. Simply stated, alpha is often considered to represent the value that a portfolio manager adds to or subtracts from a fund's return. A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha would indicate an underperformance of 1%. 2. If a CAPM analysis estimates that a portfolio should earn 10% based on the risk of the portfolio but the portfolio actually earns 15%, the portfolio's alpha would be 5%. This 5% is the excess return over what was predicted in the CAPM model.
The early rounds of funding for a startup company, which get their name because the first is known as Series A financing, followed by Series B financing, and so on. Alphabet rounds of financing are provided by early investors and venture capital (VC) firms, which are willing to invest in companies with limited operational histories on the hope of larger future gains. These investors will typically wait until the startup has shown some basic signs of maturity and has exhausted its initial seed capital. Taobiz explains Alphabet Rounds When a company is seeking venture capital funding, it will still have little or no revenue/cash flow, but will generally have an established business model and a clear path to a designated market segment. Venture capital firms are looking to invest with a time horizon in the five- to seven-year range, at which point they can hopefully cash out to a private equity firm or through an initial public offering of stock. Depending on the needs of the company, a Series A round of financing may be enough to propel the company to the point at which it can stand on its own operating cash flow. If a VC firm is participating in a later round of financing - a Series C financing, for example - its potential equity stake in the company will already be diluted, and it will need strong conviction that the company will earn a solid return before committing any funds to the startup.
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