Korea Securities Investment Advisor flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Modified duration

A measure of a bond's price sensitivity to yield changes. It approximates the percentage change in price for a one percentage point change in yield, assuming small shifts.

Yield to maturity

The discount rate that equates the present value of all future coupons and principal repayments to the bond's current market price, assuming the bond is held to maturity.

Put-call parity

A no-arbitrage relationship for European options stating that call price minus put price equals underlying price minus the present value of the strike price.

KOSDAQ market

A Korea Exchange market designed for technology and growth companies, with listing criteria on market capitalization, revenue, and profitability that differ from the KOSPI main board.

Money market instrument

A short-term debt instrument maturing in one year or less, such as commercial paper, certificates of deposit, and repurchase agreements, characterized by low credit risk and high liquidity.

Option premium

The price the buyer pays the seller for an option contract. The buyer's maximum loss is limited to this premium, while the seller's obligation is potentially unlimited.

Beta coefficient

A measure of a security's sensitivity to systematic market risk. A beta of one means the security moves with the market; above one indicates greater volatility.

Sharpe ratio

A risk-adjusted performance measure calculated as portfolio return minus the risk-free rate, divided by the portfolio's standard deviation of returns.

Efficient frontier

The set of portfolios offering the highest expected return for each level of risk. Portfolios below the frontier are inefficient because higher return is achievable at the same risk.

Unsystematic risk

Company-specific risk that can be reduced through diversification. It contrasts with systematic risk, which affects all securities and cannot be eliminated by holding more assets.

Relative valuation

A valuation approach that compares a company's multiples, such as price-to-earnings or price-to-book, against peer companies or industry averages to estimate fair value.

Convexity

A second-order measure of bond price sensitivity to yield changes. It corrects the duration estimate, and its effect is larger for bonds with longer maturities and lower coupons.

Performance attribution

An analysis that decomposes a portfolio's excess return relative to a benchmark into allocation, selection, and interaction effects, identifying the sources of outperformance or underperformance.

Loss aversion

A behavioral finance bias in which investors feel losses more intensely than equivalent gains, leading to holding losing positions too long or selling winners too early.

Suitability principle

A rule requiring firms to assess an investor's investment purpose, financial status, and experience before recommending a product, ensuring the recommendation fits the investor's profile.

Explanation duty

An obligation to inform investors, before contracting, of a product's structure, risks, fees, and early termination conditions, in writing or another prescribed form.

Unsolicited sales restriction

A rule limiting cold-call sales of certain high-risk financial products without the investor's request, often requiring recorded consent or written confirmation.

Know-your-customer rule

A requirement to collect and verify an investor's identity, investment purpose, and financial situation, and to update this information when circumstances change materially.

Conflict of interest

A situation where the firm's or an employee's interests may conflict with a client's. Firms must identify, manage, and disclose such conflicts to protect clients.

Financial Consumer Protection Act

Korean legislation imposing sales principles on financial firms, including suitability, explanation, and prohibition of unfair solicitation, to strengthen protection of financial consumers.

Investment policy statement

A written document defining a client's objectives, risk tolerance, constraints such as liquidity and time horizon, and rebalancing rules that guide portfolio management decisions.

Strategic asset allocation

The long-term target mix of asset classes based on the investor's objectives and risk tolerance, serving as the benchmark against which tactical deviations are measured.

Tactical asset allocation

Short-term deviations from strategic target weights based on market views, aiming to exploit perceived mispricing while remaining within policy constraints.

Threshold rebalancing

A rebalancing method that triggers trades only when an asset's weight drifts beyond a preset band around its target, reducing transaction costs compared with calendar-based rebalancing.

Dollar-cost averaging

An investing method that purchases a fixed amount at regular intervals, lowering timing risk by buying more shares when prices are low and fewer when prices are high.

Risk tolerance

The combination of an investor's financial ability to bear risk and psychological willingness to accept it. The lower of the two generally governs the asset allocation.

High-water mark

A performance fee provision under which the manager receives fees only on gains above the highest prior value, preventing repeated fees on recovered losses.

Securities transaction tax

A tax levied on transfers of shares on the Korea Exchange, generally borne by the seller, with rates that vary by market and change under statutory amendments.

Comprehensive financial income tax

A Korean tax regime aggregating interest, dividends, and certain other financial income above a statutory threshold, taxed at a separate rate with a basic deduction.

Amortized cost

An accounting measurement for debt instruments held to collect contractual cash flows, using the effective interest method to amortize premiums, discounts, and transaction costs.

Effective interest method

An accounting technique that allocates interest income or expense over an instrument's life at a constant rate applied to its carrying amount, amortizing premiums and discounts.

Fiduciary duty

A legal obligation requiring loyalty and care, placing the client's interests ahead of the firm's and avoiding or disclosing conflicts of interest.

Insider trading

Trading securities while in possession of material nonpublic information, or tipping others who trade on it, violating fair market principles and securities law.