Glossary: terms starting with T

An estimate divided by its standard error. Above about 2, an effect is usually regarded as statistically significant; when many ideas have been tested, the hurdle should be considerably higher, e.g. above 3.

Example: Mean monthly return of 0.5% with a 4% standard deviation over 120 months: t = 0.5 / (4 / √120) = 1.37, so not significant.

Source: Harvey et al. (2016)

More: Backtest overfitting: when the past looks too good

Temporary deviations from the strategic allocation based on signals such as trend, momentum or valuation. The aim is usually to avoid deep drawdowns.

Source: Faber (2007)

More: Tactical allocation: momentum, dual momentum and trend following · Methodology: Tactical allocation methodology: how the eleven tactical models work

Strategies that gain strongly in extreme crashes, such as far out-of-the-money puts or long volatility. In calm years they lose steadily.

Cash flow model for closed-end funds by Dean Takahashi and Seth Alexander (Yale, 2002): calls as a fixed share of the unfunded commitment, distributions as a share of NAV that rises with age at the rate max(Y, (t / L)^B), growth G per year. Deterministic and with few parameters; used to plan commitments and liquidity.

Source: Takahashi and Alexander (2002)

More: Takahashi-Alexander model: forecasting the cash flows of private markets funds

The portfolio on the efficient frontier with the highest Sharpe ratio. Mixes of it and the risk-free asset are superior to all other portfolios.

More: Efficient frontier: Markowitz portfolio optimization

High-interest currency that a carry trade buys, such as the Australian or New Zealand dollar and many emerging market currencies. Its interest rate also compensates for higher inflation and risks; in crises it often falls sharply.

Source: Lustig et al. (2011)

More: Carry trade: earning interest with currencies and bonds

Rule that steers the equity share so that volatility roughly matches a target value.

Example: Target 10%, measured 20% → 50% equities.

More: Tactical allocation: momentum, dual momentum and trend following · Methodology: Carry backtest: methodology for FX and bond carry

Taxes are paid later rather than sooner, for example because gains are only taxed on sale. The deferred money keeps working and earns compound interest. That is an advantage of buying and holding.

Treaty between two countries that governs which of them may tax income. For dividends, it usually caps the withholding tax, often at 15%, which can then be credited against the tax due in your home country.

Deliberately realizing losses to offset them against gains and defer taxes. Afterward, a similar but not identical investment is often bought to stay invested.

Source: Constantinides (1983)

Increased interest rate that a bank guarantees only to new customers and only for a few months. What counts for comparison is the rate over the full year: the promotional rate and the standard rate that follows, weighted by their duration.

Example: 2.75% for four months and 1.25% thereafter give 1.75% for the year.

Total expense ratio, or simply expense ratio: a fund's ongoing costs per year as a percentage of its assets. A TER of 0.20% costs about $20 a year on $10,000.

More: ETF basics: costs, replication and distributions

Excess return of long-dated over short-dated bonds as compensation for interest rate risk. As the factor TERM, the difference between long-term government bonds and the money market.

Source: Fama and French (1993)

Methodology: Factor regression, factor allocation and factor statistics: methodology

The value of all cash flows after the end of the detailed forecast, usually as a perpetuity with constant growth: last cash flow × (1 + g) / (WACC − g). It often makes up the largest part of enterprise value and is highly sensitive to WACC and growth.

More: Fundamental analysis: valuing a company like an investor

ETF on a narrow index tracking a trend such as artificial intelligence, robotics, hydrogen or cybersecurity. Often more expensive and more concentrated than broad index funds, and frequently launched after strong price rises in the stocks it holds.

Source: Ben-David et al. (2023)

More: Thematic ETFs and hype: what studies, costs and overlaps reveal

Loss in an option's value when a day passes and nothing else happens (time decay). Bought options usually have negative theta; the decay accelerates toward the end of the term, especially at the money.

Example: Call with price and strike 100, one year, 5% interest rate and 20% volatility (price 10.45): theta −0.0176 per calendar day, just under 0.17% of its value.

More: Option pricing: where fair option prices come from · Methodology: Option pricer: how Portfolio Lab values options

A time series model that changes its behavior as soon as an observed variable crosses a threshold. In the SETAR model, this variable is the series' own lagged value. The threshold has to be estimated, often from the same sample.

Source: Tong and Lim (1980)

More: Regime models: hidden Markov, Markov switching and more

Rebalancing only when a weight moves outside a tolerance band, say 5 percentage points above or below the target.

More: Rebalancing: getting your portfolio back on course

The short code of a security on a particular exchange. The same ETF has its own codes on different exchanges and in different currencies, but the same ISIN.

Hiring a ship with its crew for a period at a daily rate; the charterer decides where it sails or whether it sits at anchor as floating storage. The counterpart is the voyage charter for a single trip.

Example: VLCC with 2 million barrels at $86,000 a day: $86,000 × 365 / 12 / 2 million = $1.31 per barrel per month.

Source: S&P Global Platts (2020)

An asset is bought if its own return over recent months was positive, and sold or avoided if it was negative. The basis of trend-following strategies.

Source: Moskowitz et al. (2012); Hurst et al. (2017)

More: Trend following: riding each asset's own trend

A return from which deposits and withdrawals are stripped out: the returns of the sub-periods between cash flows are chained together. This measures the performance of a strategy or fund regardless of when money flowed in or out.

More: Time-weighted and money-weighted return: what measures what? · Methodology: Backtest methodology: data, process, rebalancing and costs

Time Invariant Portfolio Protection: a variant of CPPI in which the floor is a fixed share of the highest portfolio value to date. It rises with every new high and never falls, so part of the gains is locked in as well.

Source: Estep and Kritzman (1988)

More: CPPI: portfolio insurance with cushion, floor and multiplier · Methodology: CPPI backtest: methodology

A person who receives a tip from an insider and trades on it. Under MAR this trading is prohibited if the person knows or ought to know that it is inside information; the tipper breaches the ban on unlawful disclosure or on recommending.

Source: MAR (2014)

More: Insider trading: what is prohibited, what is allowed and what insider purchases reveal

Treasury Inflation-Protected Securities: inflation-protected US government bonds whose principal rises with the consumer price index. Their yield is a real yield; the gap to conventional Treasuries gives breakeven inflation, distorted among other things by the lower liquidity of TIPS.

Source: D'Amico et al. (2018); Gürkaynak et al. (2010)

More: Market expectations: what the yield curve, inflation-linked bonds and options reveal about the future

The digital representation of an asset (a bond, fund unit or deposit) as a token on a programmable platform. Messaging, reconciliation and settlement can then be combined in a single step. The token changes the register, not the risk of the underlying asset.

Source: BIS (2025)

More: Digital assets: tokenization, stablecoins, crypto securities and the digital euro

An approach used by large sovereign wealth and pension funds: a single total portfolio, measured against a simple reference portfolio, instead of fixed target weights and benchmarks per asset class. Every investment competes for capital based on its contribution to the whole.

Source: CAIA Association (2024); Filbeck and Bok (2025); Urwin (2025)

More: Strategic and tactical asset allocation and the total portfolio approach

Return including reinvested dividends and interest. The fair basis for any comparison of returns.

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

Contract in which one party pays the total return of an index and receives a different return in exchange. This is how swap ETFs track their index instead of holding the stocks themselves.

More: ETF basics: costs, replication and distributions

Difference in return between an ETF and its index over a period, usually slightly negative because of costs.

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

Standard deviation of the return difference between a fund and its benchmark: how evenly a fund follows its index.

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

A trade type on futures exchanges: a future is traded during the session at an agreed difference of a few ticks from the later settlement price. The CME offers TAS for energy and Treasury futures, for example; for E-mini index futures the variant is called TMAC.

Source: CME Group, TAS (2026); CME Group, TMAC (2023)

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

VX30 minus the realized volatility of the S&P 500 over 5 trading days, smoothed with a weighted 5-day average. A negative value means the market is currently fluctuating more than the futures price in.

Methodology: Volatility dashboard: methodology

The return over the last 1, 3, 5 or 10 years up to a reference date. It changes every month, because a new month is added at one end and one drops out at the other.

Methodology: Metrics methodology: how Portfolio Lab measures return and risk

The costs of a purchase or sale: order fee, bid-ask spread and market impact. With frequent trading they can depress returns more than the ongoing charges.

Methodology: Backtest methodology: data, process, rebalancing and costs

Anonymized card payments or e-mail receipts from a panel of customers, from which retailers' sales can be extrapolated ahead of quarterly results. The extrapolation depends on how well and how consistently the panel represents the customer base.

Source: Chetty et al. (2024)

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

A measure of how closely a portfolio's actual active weights follow the forecasts, expressed as a correlation, usually between 0 and 1. It extends the fundamental law: information ratio ≈ transfer coefficient × information coefficient × square root of breadth. Constraints such as short-selling bans lower it.

Example: With an IC of 0.04, 240 bets a year and a transfer coefficient of 0.5, the information ratio falls from 0.62 to 0.31.

Source: Clarke et al. (2002)

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

Planned restructuring of a portfolio from the old to the new manager or into a new allocation. The aim is to keep trading costs, market movements during the transition and operational errors small; success is usually measured by the implementation shortfall relative to the value at the start.

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

A table of the probabilities with which a Markov model switches from one state to another; each row sums to 1. The diagonal gives the expected duration of a state: 1 / (1 − p_kk).

Example: If a calm market stays calm with a probability of 0.95 per month, the calm phase lasts 1 / 0.05 = 20 months on average.

Source: Hamilton (1989)

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

Excess return divided by beta instead of volatility. Suited to the building blocks of a broadly diversified portfolio.

More: Beta and alpha: how closely a fund moves with the market

Index of the mileage driven by large trucks with at least four axles on German autobahns, based on toll collection data and published daily and monthly by the Federal Statistical Office (Destatis). Because much freight traffic follows production directly, it is regarded as an early pointer to industrial production.

Source: Askitas and Zimmermann (2013); Destatis, truck toll mileage index (2026)

Methodology: Economic pulse: how Portfolio Lab calculates early indicators

A leveraged product with a knock-out barrier, also called a knock-out warrant. A long turbo is worth roughly (spot − strike) × ratio, a short turbo the reverse. If the price touches the barrier, it expires. Open-end turbos have no maturity; you pay for the loan through the daily adjustment of the strike.

Example: Index 20,000, strike 18,000, ratio 0.01: price $20, leverage 10; at a 5% financing rate the strike rises by 2.50 points per calendar day.

Source: Entrop et al. (2009)

Equity returns cluster around the last and the first few trading days of a month. For US stocks from 1926 to 2005, there was on average a premium for market risk only on these days.

Source: Ariel (1987); McConnell and Xu (2008)

More: Stock market seasonality: Sell in May, the January effect and how to test calendar effects

The share of the portfolio that is traded over a given period. High turnover costs fees, spreads and often taxes.

Methodology: Backtest methodology: data, process, rebalancing and costs

Total value to paid-in: (distributions + NAV) / paid-in capital, i.e. DPI plus RVPI (residual value to paid-in). A multiple without a time dimension; for individual holdings, people usually speak of MOIC (multiple on invested capital).

Example: Paid in 95, distributed 35, NAV 92: TVPI = 0.37 + 0.97 = 1.34.

More: Measuring private markets: J-curve, cash flows, smoothing and public proxies

Time-weighted average price: the average price over time intervals of equal length. A TWAP algorithm buys or sells equal-sized slices at equal intervals, regardless of volume.

Example: Prices of $50, $51 and $52 over three hours: TWAP $51.00; with volumes of 30,000, 10,000 and 10,000 shares, the VWAP is $50.60.

Source: Johnson (2010)

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