Financial glossary

B

Behavioural finance

Behavioural finance is a theory which argues that due to psychology-based biases, efficient-market hypothesis is not applicable. The proponents of behavioural finance, emotionality and lack of rationality of some investors explain market anomalies.

Benchmark

A benchmark is a reference that is used to compare the performance of a portfolio. This reference assesses the investment skill of an investment manager (underperformance and outperformance are often defined by comparison to a benchmark).

Beta

Beta is a measure of portfolio market risk, with the market being represented by financial indices (such as the MSCI World) that are consistent with the portfolio’s guidelines. It measures the sensitivity of portfolio performance to the performance of the market. For example, a beta of 1.5 means the portfolio will move by 1.5% for a market performance of 1%. Mathematically, it is the correlation between the portfolio and the market multiplied by their ratio of volatilities.

Bond

A bond is a financial instrument (debt security) under which the issuer owes the holders a debt while being obliged to pay them periodic interest (coupons) repayments as well as the principal at a later date (maturity). A bond is generally negotiable as its ownership can be transferred in the secondary market.

Investments in the aforementioned fund are subject to market fluctuation and risks inherent in investing in securities. The value of investments and the revenue they generate can increase or decrease and it is possible that investors will not recover their initial investment. Source: BNP Paribas Asset Management Holding.