Haircut: The margin or difference between the actual market value of a security and the value assessed by the lending side of a transaction (i.e. a repo).
Handle: The whole-dollar price of a bid or offer is referred to as the handle (i.e. if a security is quoted at 101.10 bid and 101.11 offered, 101 is the handle). Traders are assumed to know the handle.
Hard capital rationing: Capital rationing that under no circumstances can be violated.
Hard currency: A freely convertible currency that is not expected to depreciate in value in the foreseeable future.
Harmless warrant: Warrant that allows the user to purchase a bond only by surrendering an existing bond with similar terms.
Head & shoulders: In technical analysis, a chart formation in which a stock price reaches a peak and declines, rises above its former peak and again declines and rises again but not to the second peak and then again declines. The first and third peaks are shoulders, while the second peak is the formation's head. Technical analysts generally consider a head and shoulders formation to be a very bearish indication.
Health insurance: Insurance that pays for specified expenses related to medical treatment.
Hedge: A transaction that reduces the risk of an investment.
Hedge: A transaction intended to reduce the risk of loss from price fluctuations.
Hedge fund: A fund that may employ a variety of techniques to enhance returns, such as both buying and shorting stocks based on a valuation model.
Hedge ratio (delta): The ratio of the volatility of the portfolio to be hedged and the return of the volatility of the hedging instrument.
Hedged portfolio: A portfolio consisting of the long position in the stock and the short position in the call option, so as to be riskless and produce a return that equals the risk-free interest rate.
Hedgie: Slang for a hedge fund.
Hedging: A strategy designed to reduce investment risk using call options, put options, short selling, or futures contracts. A hedge can help lock in existing profits. Its purpose is to reduce the volatility of a portfolio, by reducing the risk of loss.
Hedging demands: Demands for securities to hedge particular sources of consumption risk, beyond the usual mean-variance diversification motivation.
Hell-or-high-water contract: A contract that obligates a purchaser of a project's output to make cash payments to the project in all events, even if no product is offered for sale.
Herstatt risk: The risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to deliver its end of the contract. It is also referred to as settlement risk.
High: The highest price that was paid for a stock during a certain period. For example, the high for the day was $80, but the high for the year was $120.
High-coupon bond refunding: Refunding of a high-coupon bond with a new, lower coupon bond.
High price: The highest (intraday) price of a stock over the past 52 weeks, adjusted for any stock splits.
Highly leveraged transaction (HLT): Bank loan to a highly leveraged firm.
Historical exchange rate: An accounting term that refers to the exchange rate in effect when an asset or liability was acquired.
Historical volatility: To estimate volatility empirically, prices are observed at fixed time intervals and used to calculate volatility for that period.
Hit: A dealer who agrees to sell at the bid price quoted by another dealer is said to "hit" that bid.
Holder-of-record date: The date on which holders of record in a firm's stock ledger are designated as the recipients of either dividends or stock rights. Also called date of record.
Holding company: A corporation that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors.
Holding period: Length of time that an individual holds a security.
Holding period return: The rate of return over a given period.
Homemade dividend: Sale of some shares of stock to get cash that would be similar to receiving a cash dividend.
Homemade leverage: Idea that as long as individuals borrow (or lend) on the same terms as the firm, they can duplicate the affects of corporate leverage on their own. Thus, if levered firms are priced too high, rational investors will simply borrow on personal accounts to buy shares in unlevered firms.
Homogeneity: The degree to which items are similar.
Homogeneous: Exhibiting a high degree of homogeneity.
Homogenous expectations assumption: An assumption of Markowitz portfolio construction that investors have the same expectations with respect to the inputs that are used to derive efficient portfolios: asset returns, variances, and covariances.
Horizon analysis: An analysis of returns using total return to assess performance over some investment horizon.
Horizon return: Total return over a given horizon.
Horizontal acquisition: Merger between two companies producing similar goods or services.
Horizontal analysis: The process of dividing each expense item of a given year by the same expense item in the base year. This allows for the exploration of changes in the relative importance of expense items over time and the behavior of expense items as sales change.
Horizontal merger: A merger involving two or more firms in the same industry that are both at the same stage in the production cycle; that is two or more competitors.
Horizontal spread: The simultaneous purchase and sale of two options that differ only in their exercise date.
Host security: The security to which a warrant is attached.
Hot money: Money that moves across country borders in response to interest rate differences and that moves away when the interest rate differential disappears.
Hubris: An arrogance due to excessive pride and an insolence toward others.
Human capital: The unique capabilities and expertise of individuals.
Hurdle rate: The required return in capital budgeting.
Hybrid: A package containing two or more different kinds of risk management instruments that are usually interactive.
Hybrid security: A convertible security whose optioned common stock is trading in a middle range, causing the convertible security to trade with the characteristics of both a fixed-income security and a common stock instrument.
Hypothecate: To pledge securities as collateral for a loan.