Korea Financial Investment Analyst key terms

The Korean statute governing financial investment businesses, products, and markets. It consolidated prior securities, futures, and asset-management laws and sets licensing, conduct, and investor-protection rules for all financial investment firms.

The regulatory permission a firm needs to conduct financial investment business such as dealing, brokerage, collective investment, trust, or discretionary management. Licenses are granted per business category and require minimum capital, personnel, and infrastructure.

A duty requiring firms to assess an investor's investment purpose, financial situation, and experience, and to recommend only products appropriate for that investor. It applies to recommendations to general investors under Korean conduct rules.

A regulated disclosure document that describes a collective investment fund's structure, fees, risks, and policies. Firms must deliver it to investors before subscription so they can make an informed decision.

A vehicle pooling money from multiple investors to invest in securities, derivatives, or other assets under professional management. Korean law classifies them into securities funds, derivatives funds, real estate funds, and special asset funds.

The per-unit value of a fund calculated by dividing total net assets by units outstanding. Korean funds typically price subscriptions and redemptions using a forward price set after the trading cutoff.

A business in which a firm manages client assets under a discretionary mandate, deciding trades without case-by-case client instructions. It requires a license and is distinct from advisory services and collective investment operation.

Price divided by earnings per share, showing how much investors pay per unit of accounting profit. It is meaningful only when compared with peers, history, and growth expectations, and it fails for loss-making firms.

Price divided by book value per share, indicating the premium or discount to accounting equity. A ratio below one often signals expected low returns on equity or asset-quality concerns.

Net income divided by average shareholders' equity, measuring how efficiently equity capital generates profit. DuPont decomposition splits it into margin, asset turnover, and leverage components.

A valuation method discounting projected free cash flows at a risk-adjusted rate to estimate intrinsic value. Its output is highly sensitive to terminal-growth and discount-rate assumptions.

The blended required return on a firm's debt and equity, weighted by their market-value proportions and adjusted for tax shields on interest. It serves as the discount rate for enterprise cash flows.

A valuation approach adding the present value of expected earnings above the required return on equity to current book value. It is useful when free cash flows are negative or hard to forecast.

Risk from economy-wide factors such as interest rates, inflation, and market sentiment that cannot be diversified away. Investors are compensated for bearing it, and it is measured by beta in the CAPM.

A measure of an asset's sensitivity to movements in the market portfolio. A beta above one implies amplified market exposure; below one implies defensive behavior; a negative beta moves opposite the market.

A model stating expected return equals the risk-free rate plus beta times the market risk premium. It underpins cost-of-equity estimates and performance evaluation despite well-known empirical limitations.

Excess return over the risk-free rate divided by return volatility. It measures reward per unit of total risk and is suitable for evaluating portfolios that are not fully diversified.

The difference between a portfolio's actual return and the return predicted by CAPM given its beta. A positive value suggests outperformance beyond compensation for market exposure.

The standard deviation of the difference between a portfolio's returns and those of its benchmark. It quantifies how closely an index fund or active mandate follows its stated benchmark.

A measure of a bond's price sensitivity to interest-rate changes, expressed in years for Macaulay duration and as a percentage price change for modified duration. Longer duration means greater rate risk.

The curvature of the price-yield relationship, capturing how duration changes as yields move. Positive convexity means gains from falling yields exceed losses from rising yields of equal size.

The yield difference between a corporate bond and a comparable government bond, compensating for default and liquidity risk. Widening spreads signal deteriorating credit conditions or rising risk aversion.

A closed-form option pricing model based on underlying price, strike, volatility, time, and interest rates, assuming no arbitrage and continuous hedging. It yields the theoretical fair value of European options.

The volatility input that makes a model price equal the observed market price of an option. It reflects market expectations and is often quoted as a volatility smile or skew across strikes.

Sensitivity measures of option value to underlying factors: delta to price, gamma to delta, theta to time decay, vega to volatility, and rho to interest rates. Traders use them to hedge exposures.

Offsetting an option position's price exposure by trading the underlying so portfolio delta is near zero. Because gamma changes delta, the hedge must be rebalanced as prices move.

An agreement to exchange currencies at a fixed rate on a future date. The forward rate reflects the interest-rate differential between currencies under covered interest parity.

A theory holding that the forward premium or discount between two currencies equals their interest-rate differential, preventing riskless arbitrage. Deviations may arise from capital controls and transaction costs.

The proposition that prices quickly incorporate available information, so consistent risk-adjusted excess returns are difficult to earn. Weak, semi-strong, and strong forms differ by the information reflected.

A persistent pattern of returns not explained by standard risk models, such as size, value, or momentum effects. Anomalies challenge market efficiency and are often cited in factor investing.

A strategy systematically tilting portfolios toward characteristics such as value, size, momentum, quality, or low volatility that historically earned premiums. Implementation requires careful risk control and cost management.

Using borrowed funds or derivatives to increase exposure relative to capital. It magnifies both gains and losses and raises the risk of forced liquidation during adverse price moves.

Collateral that investors or clearing members deposit to cover potential losses on leveraged or derivative positions. Maintenance requirements trigger calls for additional funds when equity falls below thresholds.

A situation where a firm's or employee's interests could improperly influence advice or execution for clients, such as proprietary trading alongside client orders. Firms must identify, manage, and disclose such conflicts.

Trading on material non-public information about a company or security in breach of a duty of confidence. Korean law prohibits it and imposes criminal and civil liability on tippers and tippees.

Conduct intended to distort prices or trading volume, such as wash trades, matched orders, or spreading false information. It undermines market integrity and is subject to severe sanctions.

Selling borrowed securities in expectation of buying them back at a lower price. Korean rules impose borrowing, reporting, and in some periods temporary ban requirements, and naked short selling is prohibited.