CFA® glossary: D

53 terms beginning with D.

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Daily settlement

Marking a futures position to market at the end of each day, with gains and losses paid through the margin account. The contract's value resets to zero after each settlement. Where it appears →

Dark pool

A trading venue that shows no quotes before a trade, so large orders can be matched without revealing them. It limits market impact, at the cost of uncertain execution and less transparency for the market. Where it appears →

Data mining

Searching many variables or rules until something looks significant. Test enough hypotheses and chance alone produces impressive results, so how many were tried matters as much as the result. Where it appears →

Deadweight loss

Surplus destroyed when a tax, price control or monopoly pushes quantity away from the competitive equilibrium. Nobody gains it, which is why it measures an intervention's efficiency cost.

Debt service coverage ratio

Cash flow available for debt service divided by the interest and principal due. Lenders set a minimum, which caps how much debt a project or property can carry.

Debtor-in-possession financing

New lending to a company in court-supervised reorganisation that keeps operating. It is given priority over existing claims, making it a relatively secure and well-paid loan. Where it appears →

Declining balance

An accelerated depreciation method applying a fixed rate to the asset's remaining carrying amount, so the charge is largest in the first year and falls thereafter.

Deep learning

Machine learning using neural networks with many layers, each learning features from the one before. Suited to large volumes of text, images and audio, and hard to explain. Where it appears →

Deferred tax asset

Tax paid early, or a loss carried forward, that will reduce a future bill. It is worth something only if there are future profits to use it against. Where it appears →

Deferred tax liability

Tax postponed because the tax rules recognised something sooner than the accounts did. A firm that keeps investing can carry it indefinitely. Where it appears →

Defined benefit

A pension promising a specified payment, so the employer carries the investment and longevity risk rather than the employee. Where it appears →

Deflation

A sustained fall in the general price level. It raises the real burden of debt, can hold back spending and, with rates near zero, limits what conventional monetary policy can do. Where it appears →

Degrees of freedom

The number of observations free to vary once the estimates a statistic relies on are fixed, such as n − 1 for a sample variance. They set which t, chi-square or F distribution applies. Where it appears →

Delta

The change in an option's value for a small change in the underlying price: between 0 and 1 for a call, between −1 and 0 for a put. It is also the hedge ratio, the units of the underlying that offset one option. Where it appears →

Demand curve

The quantity buyers want at each price, with income, the prices of related goods, expectations and the number of buyers held fixed. A change in any of those shifts the whole curve. Where it appears →

Demographic dividend

A boost to growth as the working-age share of a population rises, because more people are producing relative to dependants. It reverses as the population ages.

Denominator effect

A ratio moving because its denominator changed rather than its numerator. In private markets: when public holdings fall, lagged private valuations become a larger share of the total, pushing the allocation above target. Where it appears →

Dependent variable

The variable a regression sets out to explain, also called the explained variable. Its fitted value is the intercept plus the slope times the independent variable. Where it appears →

Depository receipt

A security traded in one market representing shares held by a custodian in another. It gives foreign exposure in the investor's own market and settlement system, but does not remove currency risk.

Determinations committee

The industry body of dealers and investors that rules whether a credit event or a succession event has occurred for credit default swaps, and on how they are settled.

Dickey–fuller test

A test for a unit root: regress the first-differenced series on its own lagged level and test whether the slope is zero. It uses its own critical values, because the usual t-test is invalid under the null. Where it appears →

Differentiation

Competing by offering something customers will pay a premium for — brand, quality, features or service. It earns higher prices rather than lower costs, and lasts only while rivals cannot copy it.

Diminishing returns

Each extra unit of one input, with the others held fixed, adding less output than the one before. It is why accumulating labour or capital alone eventually stops raising growth. Where it appears →

Direct lending

Loans made by private funds rather than banks straight to mid-sized companies, usually senior, secured and floating rate. Steady contractual income with a premium for illiquidity and complexity. Where it appears →

Direct method

Presenting operating cash flow as gross receipts and payments — cash from customers, to suppliers, to employees. It shows where the cash came from, which a reconciliation from net income does not. Where it appears →

Disciplinary review committee

The CFA Institute Board committee responsible for enforcing the Code and Standards. Its hearing panels decide contested cases, both whether a violation occurred and what the sanction is. Where it appears →

Discontinued operations

A separate major line of business or geographical area that has been disposed of or is held for sale. Its results are shown apart from continuing operations, net of tax, because they will not recur.

Discount factor

The present value of one unit paid on a given date: 1 ÷ (1 + spot rate) raised to the number of periods. Multiplying a cash flow by it discounts that cash flow. Where it appears →

Discount for lack of control

A reduction in value for a minority interest that cannot direct the business, the counterpart of a control premium: 1 − 1 ÷ (1 + control premium).

Discount margin

The spread the market currently demands on a floating-rate note. Where it sits above the fixed quoted margin, the note trades below par.

Discount rate

The rate a future amount is shrunk by to express it in today's money. It is the return available elsewhere on something equally risky. Where it appears →

Discrete uniform distribution

A distribution with a finite number of outcomes, each equally likely; a fair die is the standard example. Every probability follows simply from counting the outcomes.

Discretionary fiscal policy

Deliberate changes to government spending or tax rates, as opposed to automatic stabilisers. Recognition, action and impact lags mean it can arrive after the need has passed.

Disposition effect

Holding losers and selling winners, because closing a loss makes it final. It is loss aversion showing up in a trading record. Where it appears →

Dissociation

Removing oneself from an activity that breaks the law or the Standards — refusing to take part, taking one's name off the work, and in extreme cases resigning. Objecting while carrying on is not enough.

Distributed ledger

A shared record kept in matching copies by many participants rather than by one central authority, with entries linked cryptographically so that past records are very hard to alter.

Diversification

Holding things that do not move together, so their independent disappointments cancel. It lowers risk without lowering expected return, which nothing else does. Where it appears →

Dividend discount model

Valuing a share as the present value of the dividends it will pay. In its constant-growth form the answer hangs on the gap between the required return and the growth rate. Where it appears →

Dividend yield

Annual dividends per share divided by the share price. In derivatives pricing it is often treated as a continuous yield, δ, which lowers the forward price and the value of a call on the share. Where it appears →

Document frequency

The share of documents, or sentences, in a collection that contain a given word. Its inverse boosts rare words in TF–IDF, since a word found everywhere says little.

Domicile

In some legal systems, the place a person treats as their permanent home, which is harder to change than residence. It can decide which inheritance tax and succession law apply.

Donor-advised fund

A charitable account held by a sponsoring organisation: the donor gives irrevocably, may get an immediate deduction where the law allows, and recommends grants later. Simple and cheap, but with less control than a foundation.

Double taxation

Corporate profit taxed once at the company level and again when paid out to shareholders as dividends. Retained profit escapes the second tax until it is distributed. Where it appears →

Doubtful accounts

Receivables not expected to be collected. The allowance for them is deducted from receivables and set by management estimate, so trimming it raises profit with no change in the customers. Where it appears →

Dpi

Distributed to paid-in capital: the cash a private fund has returned to investors divided by the capital they have paid in. The realised part of the fund's multiple, and the only part that is certain.

Dual-class structure

Two share classes with different votes per share, so founders can keep control with a minority of the economic interest. Whether and how it is allowed depends on jurisdiction and exchange. Where it appears →

Dummy variable

An independent variable coded 1 or 0 to represent a category, such as a quarter or a crisis period. With n categories use n − 1 of them, or together they duplicate the intercept. Where it appears →

Duration gap

Macaulay duration less the investment horizon. Positive leaves you exposed to rates rising, negative to them falling; matched, the two risks cancel. Where it appears →

Duration times spread

Spread duration multiplied by the credit spread, a measure of a bond's credit risk. Spreads tend to move in proportion to their level, so it captures spread risk better than spread duration alone. Where it appears →

Durbin–watson test

A test for first-order serial correlation in regression residuals; a statistic near 2 suggests none. It is invalid for autoregressive models, whose residual autocorrelations are tested instead. Where it appears →

Dutch auction

A buyback in which holders tender shares at prices within a set range. The company pays the lowest price that fills its order, and pays that single price to every accepted tender.

Dutch disease

Harm to other traded industries when resource exports push up the real exchange rate and make manufacturing less competitive. One reason resource wealth can slow growth.

Duty of loyalty

Under Standard III(A), acting for the benefit of clients and placing their interests before the employer's and one's own, with reasonable care and prudent judgement.