AIMA

The Alternative Investment Management Association

Alternative Investment Management Association Representing the global hedge fund industry

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Glossary

AIMA's Glossary has been developed for all those with an interest in the alternative investment industry - from the beginner to the advanced practitioner.

You will find a considerable overlap of content with the traditional fund management industry - the instruments used, the service providers employed, etc.  However, the hedge fund industry is individual in the way in which it uses these resources.

For reasons of law and accuracy, this is not a wiki.  It is a work-in-progress, however, and we invite you to submit new items for inclusion below (including the proposed definition).

  • We express our sincere thanks to Stanley Marchon, Vincent Kuhn, Nicolas Watin-Augouard, Stephen Foster and Sunil Gopalan for the creation of this resource. 
  • Special thanks are also extended to Anne Taulbut and Jennifer Nye of Katten Muchin Rosenman Cornish for the extensive legal review.
 
E-mini
A mini contract that is traded exclusively on an electronic trading facility. E-Mini is a trademark of the Chicago Mercantile Exchange.
efficiency test

The Efficiency Test is a key risk management tool. It is the cost of the cheapest dynamic trading strategy, trading some reference index and cash, which generates the same payoff distribution as the hedge fund. First, a payoff function is constructed that, in combination with the distribution of the reference index, yields the same end-of-month payoff distribution as the fund. Second, this payoff function is priced using standard option pricing technology. The Efficiency Test can be interpreted as a highly generalized Sharpe Ratio (see Sharpe ratio). Due to its dynamic nature, it is able to deal with any type of return distribution.

efficient frontier

The combination of securities that maximizes the expected return for any level of expected risk, or that minimizes expected risk for any level of expected return.

efficient market

In economic theory, an efficient market is one in which market prices adjust rapidly to reflect new information. The degree to which the market is efficient depends on the quality of information reflected in market prices. In an efficient market, profitable arbitrage opportunities do not exist and traders cannot expect to consistently outperform the market unless they have lower-cost access to information that is reflected in market prices or unless they have access to information before it is reflected in market prices. See Random Walk.

EFS
See Exchange of futures for swaps (EFS).
electronic trading facility

A trading facility that operates by an electronic or telecommunications network instead of a trading floor and maintains an automated electronic audit trail of transactions. See Exchange.

eligible investor

An investor who satisfies the suitability and eligibility requirements of a fund (generally, as set forth in the fund's Prospectus) and is able to acquire shares/interests in a fund without violating applicable laws in a particular jurisdiction, generally in relation to the offering of shares/interests by way of the relevant private placement exemptions in the country into which the shares/interests are to be offered.

Elliot wave
1) A theory named after Ralph Elliot, who contended that the stock market tends to move in discernible and predictable patterns reflecting the basic harmony of nature and extended by other technical analysts to futures markets; (2) in technical analysis, a charting method based on the belief that all prices act as waves, rising and falling rhythmically.
emerging markets

Emerging Markets funds invest in equity or debt of emerging countries, which tend to have higher inflation and volatile growth. Some Emerging Markets funds allocate all their capital to individual regions, while others diversify their investments and shift their weightings among these regions according to their market views. Short selling is not permitted or possible in many emerging markets and, therefore, effective hedging is often not available although Brady debt can be partially hedged via US Treasury futures and currency markets. Emerging Markets strategies are generally characterized by a relatively high return potential and a significant correlation with major bond and/or stock indexes.

equity

The net worth of a company. This represents the ownership interest of the shareholders (common and preferred) of a company. For this reason, shares are often known as equities.

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