Glossary: terms starting with I

Robert Merton's intertemporal CAPM for investors over many periods: they also hedge against changes in investment opportunities, such as interest rates. Instead of one beta there are several, one for each source of change; the theoretical foundation for factor models.

Source: Merton (1973)

Company-specific risk that can largely be eliminated by spreading investments across many securities. It corresponds to the volatility of the residuals of a factor regression.

Source: Ang et al. (2006)

More: Correlation and diversification: why mixing assets reduces risk

The extra return investors demand for not being able to sell an investment at any time, or for losing value in liquidity crises. For private equity, Franzoni et al. (2012) estimate a liquidity risk premium of about 3% a year.

Source: Franzoni et al. (2012)

Assets and liabilities are given the same duration, so that interest rate changes affect both sides equally. This keeps the funding ratio stable for small rate movements.

Source: Redington (1952); Fisher and Weil (1971)

More: Duration: how strongly bonds react to interest rates

Seven-digit identification number of a ship under the numbering scheme of the International Maritime Organization (IMO). It is part of the static AIS data and identifies the ship itself, whereas the MMSI identifies its radio station.

Source: ITU (2026); IMO (2015)

Methodology: Ships at chokepoints (beta): methodology

Investing with the aim of a measurable positive impact on the environment or society alongside the return, e.g. financing new solar parks. Exchange-traded equity funds meet this standard only to a limited extent, because they buy existing shares.

More: ESG ETFs: index rules, ratings, returns and the limits of sustainable funds

The cost of implementation, measured as the gap between a paper portfolio that would have traded without costs at the price at the time of the decision and the real portfolio: delay, market impact, fees and opportunity costs. Also the name of algorithms that trade against the price at order entry (arrival price).

Source: Perold (1988)

More: Order types and execution: from limit orders to MOC, VWAP, TAS and BTIC

The expectation, derived from option prices, of how closely the stocks in an index will move together. High values occur in crises, when stocks fall together; low values mean that individual stocks go their own way.

Methodology: Sentiment: methodology for the fear and greed index, put/call ratio and COT

The annualized return from buying a bond or an index today and delivering it into a sold future. If it is above the financing rate, cash-and-carry pays off; the deliverable bond with the highest implied repo rate is usually the cheapest to deliver.

Example: Purchase price 98.50, invoice amount in 90 days 99.35: 0.85 / 98.50 × 360 / 90 = 3.45%.

Source: Hull (2021)

More: Basis trades: positive and negative basis in bonds, CDS and futures

Return that the market prices in through its weights and risks: Π = δ × Σ × market weights. Starting point of the Black-Litterman model.

More: Black-Litterman: incorporating your own views cleanly

Volatility embedded in option prices: the value that, plugged into an option pricing model, reproduces the market price. It is an expectation of future volatility including a risk premium; the VIX measures it for the S&P 500.

Source: Black and Scholes (1973); Whaley (2000)

More: VIX: how to read the stock market's fear gauge · Methodology: Volatility dashboard: methodology

The ongoing return on an owner-occupied home: the rent the owner would have to pay for a comparable home. It is not paid out, but alongside the change in value it is the most important part of the return.

More: Your whole wealth: total wealth from portfolio, home, human capital and car

In-sample data are the data used to estimate a model or choose a rule; out-of-sample data are data that were not used in the process. Only results outside the sample are a fair test.

More: Backtest overfitting: when the past looks too good

Indicative net asset value, calculated continuously during trading hours from the current prices of the fund's holdings. It helps you assess an ETF's market price.

More: ETF basics: costs, replication and distributions

Method of valuing income-producing property: the value follows from the income achievable at market rates minus operating costs, capitalized at a rate derived from purchase prices and net income (the cap rate). If the cap rate rises, the value falls. Germany's statutory version (ImmoWertV) also takes land value and remaining useful life into account.

Example: Greatly simplified as a perpetuity: $9,600 of net income gives a value of $300,000 at 3.2% and $259,459 at 3.7%.

Source: ImmoWertV (2021)

More: Real estate as an investment: rental property, REITs, open-end funds and private real estate

The share of the largest companies in the overall index. In broad global indices it has risen markedly since the 2010s, because a few very large US technology companies have grown strongly.

More: World portfolio: the whole world in one or two ETFs

Price movement of stocks that are added to or removed from an index, mainly between announcement and implementation. For additions to the S&P 500, the excess return has fallen from an average of 7.4% in the 1990s to below 1% in the last decade.

Source: Shleifer (1986); Greenwood and Sammon (2025)

More: Smart indexing: added value for index funds around corporate actions and index changes

A fund that tracks an index as closely as possible instead of selecting securities. Low costs are its main advantage; after costs, it beats the average active fund in the same market.

Source: Bogle (2007); Sharpe (1991)

More: Active or passive investing: ETFs versus fund managers

Fee that a fund provider pays the index provider for using an index; it is included in the ongoing charges. In 2012, Vanguard switched the index provider for 22 index funds, citing rising license fees as the reason.

Source: Vanguard (2012)

More: Index providers and valuation points: why the same index is calculated differently

The regular review of an index, in which securities are added or removed and weights adjusted, usually quarterly. Index funds have to follow suit, which incurs costs.

Source: Frino and Gallagher (2001)

Rise in the general price level, measured for example by the consumer price index. Reduces the purchasing power of a fixed amount.

More: Real return: what is left after inflation

The slope of a regression of an asset's nominal return on inflation. A beta of 1 protects purchasing power exactly; below that, the asset loses in real terms when inflation rises. A distinction is made between betas on expected and on unexpected inflation.

Example: Beta 1.38: 2 percentage points more inflation bring about 1.38 × 2 = 2.76 percentage points more nominal return.

Source: Bekaert and Wang (2010); Fama and Schwert (1977)

More: Liquid real assets: inflation protection with tradable real assets in a portfolio

Part of a bond's yield that compensates investors for uncertainty about future inflation. It cannot be observed directly, only estimated from models.

Source: Bekaert and Wang (2010)

More: Real return: what is left after inflation

Swap in which one party pays a fixed inflation rate and the other the actual change in a price index, often in a single payment at the end (zero-coupon inflation swap). Pension plans with inflation-linked pensions receive actual inflation and so hedge the real value of their liabilities.

More: Liability-driven investing and cash flow driven investing: covering liabilities with bonds

The correlation between forecasts and actual outcomes. Even values well below 0.1 can lead to a good information ratio when there are many independent decisions.

Source: Grinold and Kahn (2000)

More: Tracking error and information ratio: deviation from the index

A model selection measure that combines goodness of fit (−2 log L) with a penalty per parameter; smaller is better. Hirotugu Akaike's AIC penalizes each parameter by 2, Gideon Schwarz's BIC by ln n for n observations, i.e. more heavily from eight observations upwards. The BIC therefore tends to choose more parsimonious models.

Example: 1,000 weekly returns, log L = −2,180, 7 parameters: AIC = 2 × 7 + 4,360 = 4,374, BIC = 7 × 6.908 + 4,360 = 4,408.4.

Source: Akaike (1974); Schwarz (1978)

More: Regime models: hidden Markov, Markov switching and more · Methodology: Regime methodology: how the hidden Markov model works

Average excess return over the benchmark divided by the tracking error.

Example: 0.32% excess return with a 0.70% tracking error gives 0.46.

More: Tracking error and information ratio: deviation from the index

Number of new claims for unemployment benefits in the US per week, published weekly by the US Department of Labor. It is one of the fastest indicators of layoffs. Continuing claims show how many people continue to receive benefits.

Methodology: Economic pulse: how Portfolio Lab calculates early indicators

Under Art. 7 of the EU Market Abuse Regulation (MAR), precise information that has not been made public about an issuer or a financial instrument and that could have a significant effect on the price. Trading on it is prohibited; according to recital 28, analyses and estimates based on publicly available data are not in themselves inside information.

Source: CJEU (2026); BaFin (2026)

More: Alternative data: job ads, Reddit, X, satellites and card payments

Forward rate for an infinitesimally short period that starts at a future point in time. With continuously compounded zero rates r(t), f(t) = r(t) + t · r′(t). The ECB publishes it daily for its yield curves; the value one year ahead shows the short rate priced in for one year from now, including premiums.

Example: One-year zero rate of 2.0%, rising by 0.1 percentage points per year of maturity: f(1) = 2.0 + 1 × 0.1 = 2.1%.

Source: ECB, yield curve methodology (2026)

Methodology: Macro dashboard and regime analysis: methodology

The remainder of the Brinson decomposition: (wᵢ − Wᵢ) × (rᵢ − bᵢ). Positive when a segment is overweight in which selection was also better; many reports add it to selection.

Source: Brinson et al. (1986)

More: Performance attribution: Brinson decomposition, factors and linking over time

Share of the liabilities' interest rate risk that the assets hedge: basis point value of the hedge divided by the basis point value of the liabilities. At 100%, a small parallel shift in rates leaves the surplus unchanged.

Example: Liabilities with a basis point value of $1.50 million, hedge with $0.90 million: ratio 60%. If rates rise by 100 basis points, the surplus grows by 40% × $150 million = $60 million.

More: Liability-driven investing and cash flow driven investing: covering liabilities with bonds

Exchange of fixed for floating interest payments on an agreed notional amount, which itself does not change hands. Whoever receives the fixed rate gains, like a bondholder, when rates fall. That party thus obtains duration with almost no capital outlay, but must post collateral as soon as the swap loses value.

More: Liability-driven investing and cash flow driven investing: covering liabilities with bonds

Money-weighted return: the interest rate at which all inflows and outflows, including the final value, have a present value of zero. Better suited to savings plans than the CAGR.

More: CAGR: how to calculate the average annual return correctly

What an option would be worth if exercised immediately: for a call, price minus strike; for a put, strike minus price; at least zero. The rest of the option price is the time value, which shrinks to zero by expiry.

Example: Call with strike 90 at a price of 100, option price 13: intrinsic value 10, time value 3.

More: Option pricing: where fair option prices come from

An ETF that delivers the opposite (−1) or a negative multiple (−2) of the index return each day. Over longer periods of volatility without a trend, it loses much like a 2x ETF, because the factor L × (L − 1) is the same for L = −1 and L = 2.

Example: Index alternating between +4% and −3.846% over 20 days, unchanged at the end: inverse ETF −3.03%, exactly like the 2x ETF.

Source: Cheng and Madhavan (2009); FINRA (2009)

More: Leveraged ETFs and return stacking: how they work, long holding periods, costs and research

Weights proportional to 1 / volatility: calm assets get more, volatile ones less. Ignoring correlations, it is a simple approximation of risk parity.

More: Risk parity: equal risk contributions instead of equal weights · Methodology: Tactical allocation methodology: how the eleven tactical models work

Short-term interest rates are above long-term rates. In the US, an inversion preceded most recessions of recent decades, though with a varying lag of usually one to two years.

Source: Estrella and Mishkin (1998); Harvey (1988)

More: Yield curve: what the term structure reveals and why an inverted curve is seen as a warning sign · Methodology: Macro dashboard and regime analysis: methodology

Extended MSCI index variant that contains small companies as well as large and mid-sized ones and covers around 99% of the free float in each country. The many small caps greatly increase the number of constituents, but add only little weight.

Example: On September 30, 2026, the MSCI ACWI IMI had 8,036 constituents, 5,622 more than the MSCI ACWI; the ten largest weighed 22.73% instead of 25.40%.

Source: MSCI GIMI Methodology (2024); MSCI ACWI IMI Factsheet (2026)

More: MSCI World vs ACWI vs FTSE All-World: structure, concentration and combinations

Adviser to institutional investors who helps with investment strategy, asset allocation and the selection of asset managers, and often runs the RFP process. According to the UK competition authority, consultants there influence more than £1.6 trillion of pension assets; whether their manager recommendations add value after fees has not been shown.

Source: CMA (2018); Jenkinson et al. (2016)

More: RFP and mandate awards: how institutional investors select asset managers

Bonds rated BBB− (or Baa3) or better: issuers that are certified as having good creditworthiness. Many institutional investors may only hold such bonds.

Methodology: Risk factors in the look-through: methodology

Contract between investor and asset manager covering a mandate: investment objective and guidelines, benchmark, permitted instruments, reporting, fees, liability, proxy voting, termination and handover of the portfolio.

More: RFP and mandate awards: how institutional investors select asset managers

Difference between the return of a fund or market and the return that investors actually earn in it. Because of procyclical buying and selling, investor returns are usually lower.

Source: Dichev (2007)

More: Time-weighted and money-weighted return: what measures what?

Sold strangle whose risk is capped by bought options further out. Earns a premium as long as the price stays within a range; the potential loss is limited, but usually a multiple of the premium.

Example: Puts 85/92 and calls 108/115, 91 days, price 100: premium 1.80, maximum loss 5.20.

More: Option pricing: where fair option prices come from

International Securities Identification Number: a twelve-character identifier of a security, beginning with the country code, e.g. IE for Ireland. Unlike ticker symbols, it is unique worldwide.

The difference between the issue or ask price of a structured product and the fair value of its components, the bond and the options. It covers the issuer's distribution, hedging and profit.

Example: Fair value $82.76, ask price $84.00: margin 84 / 82.76 − 1 = 1.50%.

Source: Henderson and Pearson (2011); Baule et al. (2008)

Risk that the issuer of a debt security (bond, certificate, ETN or ETC) becomes insolvent. The investor then only gets what is left in the insolvency proceedings, even if the underlying has performed well; statutory deposit insurance does not cover this.

Source: EinSiG (2015); BGH (2011)

More: Counterparty and issuer risk: CVA, ETCs, certificates and swaps