cost of carry

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Cost of carry

Out-of-pocket costs incurred while an investor has an investment position. Examples include interest on long positions in margin account, dividend lost on short margin positions, and incidental expenses. Related: Net financing cost.
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Cost of Carry

The cost of storing a commodity over a period of time. It includes incidental costs, insurance coverage, and the physical cost of storage. It does not include depreciation, if any. The carrying charge is incorporated in the price of a commodity on the futures market. See also: Carrying costs.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

cost of carry

Direct costs paid by an investor to maintain a security position. For example, an individual purchasing securities on margin must pay interest expenses on borrowed funds. Likewise, an investor selling stock short is responsible for making dividend payments to the buyer. Also called carrying charges.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Under departures from the cost-of-carry theory, historical market information, conditional variance, and conditional correlation implied from emissions allowances futures markets have significant impacts on time-varying hedge ratios and hedging effectiveness.
The main innovation of this paper is that, under departures from the cost-of-carry theory, conditional volatility of spot prices, conditional volatility disturbed from futures market, and conditional correlation of market noises implied from spot and futures markets have significant effects on time-varying hedge ratios and hedging effectiveness.
Based on a pioneering study of cost-of-carry theory by Working [10] and Brennan [11], in the complete emissions allowances market, assumed emissions allowances markets have no transaction costs, no arbitrage behavior, and no storage costs; [S.sub.t] denotes spot price of emissions allowances, [F.sup.*.sub.t,T] denotes theoretical price of futures contracts for maturity T at time t, and r is the continuously compounded risk-free interest rate.
where [delta] denotes convenience yield of emissions allowances and r - [delta] denotes cost-of-carry of emissions allowances; the logarithmic equation (1) can be expressed as follows:
Among the topics are stocks, arbitrage and trading, the extended cost-of-carry model, the multi-period binomial model, and interest rate swaps.
Absent seasonality, the convenience yield, timing options, or quality issues, the basis in a pure cost-of-carry market represents any storage fees plus the opportunity cost of capital.
One example of a pure cost-of-carry market is single stock futures which has both quarterly and serial contracts listed in the United States.
We show that in a pure cost-of-carry environment, there are few economic benefits for either type investor from listing serial month contracts in addition to quarterly expirations.
In this section, we consider whether there are additional net benefits to investors from listing serial month contracts in a pure cost-of-carry market.
If the spot asset cost-of-carry were constant, MRM and TRM regression [beta]s would be the same.
The cost-of-carry model cannot be used to control for changes in the hedge ratio caused by changes in the futures contract time-to-maturity or other changes in the conditioning information set (such as those discussed in Bell and Krasker, 1986; and Leistikow, 1993; and those empirically verified in Leistikow, 1989).
However, in the more mainstream, longer standing, and more widely accepted cost-of-carry literature (Working, 1949, is one of the seminal papers), the ([F.sub.Tt] - [P.sub.t]) term is known as the basis.