All Questions
Tagged with asset-pricing microeconomics
13 questions
2
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83
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Does the near-zero value of Fannie and Freddie shares indicate the validity of the Discount Dividend Model?
The Discount Dividend Model posits that the value of equities is equal to the discounted value of future dividend payments of a firm; for a firm that doesn't pay a dividend, you presume that they are ...
2
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2
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108
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Deriving the constant relative risk aversion utility function
Here is the question I am trying to tackle:
Suppose that we are given a utility function $u$ with relative risk aversion $R_u$. Show that $R_u$ is constant and equal to $\rho$ iff there exist $\zeta\...
3
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0
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67
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Some basic Consumption CAPM questions
Say we are in a world described by the consumption CAPM. All investors in this world have quadratic utility. Also, assume that consumption is as follows:
$$c_{t+1} = (1+m_t)c_t + s_t c_t e_t $$
where ...
- 349
1
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0
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253
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How is equilibrium reached in CAPM such that the tangency portfolio = market portfolio?
From my research online, when learning CAPM with $n$ risky assets and a risk free asset with return $r_f$, I always see the conclusion that in equilibrium, the market portfolio = tangency portfolio ...
- 111
1
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1
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69
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Capital/Income Ratio in Pikketty's Capital
In Capital by Thomas Pikketty, https://www.robertdkirkby.com/blog/2015/summary-of-piketty-i/, he states that World War I and World War II were the main reasons why the Capital Income to Labour Income ...
- 649
1
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1
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74
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Budget constraint in Radner Sequential Trade Equilibria
Suppose that $q$ is a k-tuple vector of prices for the k assets whose quantities are given by the k-tuple $\theta$. I have just read that in the Radner Sequential Trade Equilibrium (not sure if this ...
- 211
-1
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2
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66
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How much of an assets price change is due to speculators and functional buys/sellers
If (for example) a heavily traded asset like crude oil has a price move of x, how much of that is influenced by functional buyers/sellers and how much by speculators?
Let's say x is +100, there are 8 ...
- 101
3
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1
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827
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Proving that constant absolute risk aversion and relative risk aversion implies independence of initial wealth
I was able to prove that for a portfolio with one risk-free asset and one risky asset, if the Arrow-Pratt measure of absolute risk aversion is constant (i.e., constant absolute risk aversion, CARA), ...
- 145
1
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0
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122
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Metric for evaluating sales with dynamic pricing
Suppose you have a sausage maker. He buys batches of ground meat, then makes and sells sausages. Suppose each batch of ground meat makes N sausages, and each batch has specific level of quality that ...
- 111
1
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1
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113
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Can anyone help me understand the budget constraint of an investor in complete market?
In the problem below, u is a utility function; $\beta$ is a discount factor; pc(s) is the price for a contingent claim for state s. c is initial consumption and and y is initial wealth. s represents a ...
- 229
3
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1
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3k
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Under what condition would the law of one price hold?
Under the consumption-based model for asset pricing, different people will have different prices because of their different utility functions.
What is the force that make the law of one price hold?
...
- 229
3
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3
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227
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Why do housing and parking cost more in urban than in rural areas, but road access doesn't?
In city centres, land is more expensive than in suburban or rural areas, as land is scarce. Consequentially, housing and parking in cities cost more. However, the same is not true for using the road ...
- 1,754
5
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1
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79
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Do assets without rental income streams appreciate relative to assets with rental income streams?
In his book "The Armchair Economist", economist Steve Landsburg critiques an op-ed concerning the relative value of stocks and real estate:
James K. Glassman wrote a piece in The New Republic to ...
