Investments Dictionary
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- Backfill Bias
- Bias in the average returns of a sample of
funds induced by including past returns on funds that
entered the sample only if they happened to be successful.
- Balance Sheet
- An accounting statement of a firm's financial position at a specified time.
- Bank Discount Yield
- An annualized interest rate assuming
simple interest, a 360‐day year, and using the face value of
the security rather than purchase price to compute return per
dollar invested.
- Banker's Acceptance
- A money market asset consisting of
an order to a bank by a customer to pay a sum of money at a
future date.
- Baseline Forecasts
- Forecast of security returns derived
from the assumption that the market is in equilibrium where
current prices reflect all available information.
- Basis
- The difference between the futures price and the spot
price.
- Basis Risk
- Risk attributable to uncertain movements in the
spread between a futures price and a spot price.
- Behavioral Finance
- Models of financial markets that
emphasize implications of psychological factors affecting
investor behavior.
- Benchmark Error
- Use of an inappropriate proxy for the true
market portfolio.
- Benchmark Portfolio
- Portfolio against which a manager is
to be evaluated.
- Beta
- The measure of the systematic risk of a security. The
tendency of a security's returns to respond to swings in the
broad market.
- Bid Price
- The price at which a dealer is willing to purchase
a security .
- Bid-asked Spread
- The difference between a dealer's bid
and asked price.
- Binomial Model
- An option‐valuation model predicated
on the assumption that stock prices can move to only two
values over any short time period.
- Black-Scholes Formula
- An equation to value a call option
that uses the stock price, the exercise price, the risk‐free
interest rate, the time to maturity, and the standard deviation
of the stock return.
- Block Sale
- A transaction of more than 10,000 shares of stock.
- Block Transactions
- Large transactions in which at least
10,000 shares of stock are bought or sold. Brokers or "block
houses" often search directly for other large traders rather
than bringing the trade to the stock exchange.
- Bogey
- The return an investment manager is compared to
for performance evaluation.
- Bond
- A security issued by a borrower that obligates the
issuer to make specified payments to the holder over a
specific period. A coupon bond obligates the issuer to make
interest payments called coupon payments over the life of
the bond, then to repay the face value at maturity.
- Bond Equivalent Yield
- Bond yield calculated on an annual
percentage rate method. Differs from effective annual yield.
- Bond Indenture
- The contract between the issuer and the
bondholder.
- Bond Reconstitution
- Combining stripped Treasury securities
to re‐create the original cash flows of a Treasury bond.
- Bond Stripping
- Selling bond cash flows (either coupon or
principal payments) as stand alone zero‐coupon securities.
- Book Value
- An accounting measure desc1ibing the net
worth of common equity according to a firm's balance sheet.
- Book-to-market Effect
- The tendency for stocks of firms
with high ratios of book‐to‐market value to generate
abnormal returns.
- Breadth
- The extent to which movements in the broad
market index are reflected widely in movements of individual
stock prices.
- Brokered Market
- A market where an intermediary
(a broker) offers search services to buyers and sellers.
- Budget Deficit
- The amount by which government spending
exceeds government revenues.
- Bull CD, Bear CD
- A bull CD pays its holder a specified
percentage of the increase in return on a specified market
index while guaranteeing a minimum rate of return. A bear
CD pays the holder a fraction of any fail in a given market
index.
- Bullish, Bearish
- Words used to describe investor attitudes.
Bullish means optimistic; bearish means pessimistic. Also
used in bull market and bear market.
- Bundling, Unbundling
- A trend allowing creation of
securities either by combining primitive and derivative
securities into one composite hybrid or by separating returns
on an asset into classes.
- Business Cycle
- Repetitive cycles of recession and recovery.
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