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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.
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.
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.
The return an investment manager is compared to for performance evaluation.
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.
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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