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2 votes
1 answer
73 views

CAPM Cost of Capital

In the CAPM model, the beta can be used to calculate the return required by the market for a security (cost of equity). This cost of equity can also be considered as a minimum return for possible ...
1 vote
0 answers
33 views

Where can I find data on of total labor costs of a company vs their profits/return to capital?

I'd like to find out how much a company spends on labor (wages, benefits, tax-withholding, etc). Is this information available on, e.g. yahoo finance or similar websites or in some standard reports ...
0 votes
1 answer
37 views

How to formulate intra-day return?

So I have time series data on the bitcoin price. For each day there is an open price and a close price. In many papers they calculae the return like this: $$ R_t = \Delta P / P_{t-1} = ln(P_t/P_{t-1})...
2 votes
1 answer
184 views

Difference between interest rate and rate of return (Keynes)

For Keynes the economy's interest rate is defined from the equality between money supply and demand. However, he also defines the rate of return on assets (which in equilibrium would all be equal). ...
5 votes
1 answer
130 views

Why is the Chinese stock market weak while its economy is strong?

China's economy has had a decent growth rate even post-2008 however, the stock market indices appear to be weak and stuck at more or less the same level since long time as shown below for Shanghai, ...
3 votes
1 answer
324 views

Aggregate production function and returns to scale

I have following Aggregate production function - $$ Ak_1^\alpha l_1^{1-\alpha} + Ak_2^\alpha l_2^{1-\alpha}$$ Individually each part exhibit constant returns to scale but as an Aggregate function ...
1 vote
0 answers
68 views

Can the Equity Premium Puzzle apply equally to bonds?

Mehra and Prescott (JME, 1985) use the consumption-based asset price model to express the expected spread of equity returns over, e.g., a risk-free Treasury bond, as \begin{equation*} \mathbb{E}...
1 vote
0 answers
24 views

In the real world, do companies try to maximize return via maximizing profits or maximizing profits/costs (or neither)?

Suppose I buy $s$ shares of a stock at price $p_0$ and then later sell at price $p_t$. The initial and final values of my investment are then $I_0=sp_0$ and $I_t=sp_t$ respectively. The return is then ...
6 votes
1 answer
3k views

Estimating the rental rate of capital from data

Take the classic optimization problem of the neo-classical firm: \begin{equation} \begin{array}{*2{>{\displaystyle}r}} \mbox{maximize (over $K, L$)} & f(K, L) - RK - WL \end{array} \end{...
2 votes
2 answers
57 views

If return rises by same % as inflation rate rises, then perfect inflation hedge?

I read somewhere (Ang, Brière, Signori: Inflation and Individual Equities, 2012) that in a given period if the inflation rate rises by 1% point (say from 1% to 2%), and the return of Asset A rises ...
0 votes
1 answer
51 views

Relationship between capital and decreasing marginal prodcutivity

In Capital by Thomas Piketty ( chapter The capital - labor spit in the twenty first century - page 271) we have below quote The evolution of the rate of return on capita, r, significantly reduces the ...
3 votes
3 answers
20k views

How to convert daily returns to annual returns?

I have a task: to download daily stock quotations, create a portfolio and draw a CML-line. Risk-free rate was given: 6.5% of annual. I decided to convert daily returns to annual returns, using formula ...
0 votes
3 answers
87 views

ROI and stock rates

I'm an engineer with minimal to zero knowledge about economical topics, please be patient with me if the following question makes no sense or is too basic ... Currently I'm working through the "...
5 votes
5 answers
1k views

What determines whether slavery is economically efficient in industrialized/modern era economies?

Various forms of slavery were nearly universal before the industrial revolution. After industrialization, it would naively seem forced labor would continue to be widespread, as there is no way to ...
1 vote
1 answer
57 views

What's the economic argument (if any) for taxing dividends as ordinary income?

My (limited) understanding is that dividends and share repurchases are economically very similar: while share repurchases are slightly less direct, both transactions are effectively ways for publicly ...
4 votes
2 answers
81 views

Why do different product-markets record different rates of return if the assumption of competitive markets hold?

I'm a new economics student, and have become fascinated by the field of Industrial Organization. To that end, I'm reading through the Carlton and Perloff Modern Industrial Organization text book. In ...
1 vote
2 answers
610 views

Why does the Market Risk Premium increase in times of crisis?

My question is a bit more specific as it is indeed well known that investors expect higher returns in times of higher risks/volatility. However, isn't it counterintuitive to expect the market to ...
1 vote
2 answers
612 views

Why are break-even and shut down points based on average cost?

I understand the basic idea of break-even and shut-down points, where break-even is the price at which revenue covers all economic costs, and is located where the marginal cost equals to average cost. ...
0 votes
1 answer
75 views

Intertemporal budget constraint notion

Let $W$ denote the investor's wealth $B$ is the the investment in the risk free asset (suppose that the risk free rate is taken to be zero) and $X$ is the investment on the risky security which has ...
1 vote
0 answers
24 views

Link between recession and decline in investments

I recently followed MIT online lectures for economy and I found this - one of the reason for investments decline in recession is bad expectations about economy -----> leading to Higher capital output ...
2 votes
2 answers
60 views

Solving a problem using CAPM and capital structure theory

I am given the following problem: A firm currently owns assets worth $4$ milllion dollars that have a beta of 1. The risk-free interest rate is 10% and the market risk premium is 8%. Suppose the firm ...
0 votes
1 answer
57 views

Stock return predictability. Why do papers continue to use Granger Causality tests

There is a long literature on stock return predicabtility. When I read papers I see lots of authors still using granger causality tests. It is still prominently taught in undergrad and grad classess....
0 votes
1 answer
26 views

Leveraged Return on Investment

A general return on investment (ROI) formula is: \begin{equation} \text{ROI}=\frac{\text{Net Profit}}{\text{Total Investment}}. \end{equation} But if you think about an investment that requires some ...
1 vote
1 answer
509 views

How to calculate cost of equity?

So i have this question on leverage and cost of capital: Leverage and the cost of capital Gamma Airlines has an asset beta of 1.5. The risk-free interest rate is 6%, and the market risk premium is 8%....
0 votes
1 answer
6k views

How to calculate the after tax WACC

So i have this question: Assume the following data for U&P Company: Debt (D) = $100 million; Equity (E) =$300 million; rD = 6%; rE = 12%; and TC = 30%. Calculate the after-tax weighted average ...
1 vote
0 answers
20 views

Return on Capital Invested - what to include in 'capital employed'

The formula for ROCE is: ROCE = net profit before tax / capital employed Where capital employed is long-term liabilities + share capital + retained profit. However, I've only used this in very ...
0 votes
1 answer
37 views

Determining the capital return from the investment in dynamic firms and their growth

According to Tech Tour Growth 50, an organization that identifies the. young firms valued between one hundred millions and one billion dollars and which benefits ("chiffre d'affaires" increase by 50% ...
2 votes
3 answers
247 views

Should housing be considered a form of capital for the purpose of capital gains taxation?

Economists across the political spectrum almost unanimously oppose the home mortgage interest tax deduction. While I'm sure there are a few whom I've missed, I could only find a single professional ...
0 votes
1 answer
147 views

intuitive interpretation of the marginal return/productivity of capital being less than one

Let's assume you have a production function, f, and you want to know how the output changes with respect to capital, everything else constant (ceteris paribus), so you want to know the marginal ...
0 votes
0 answers
38 views

If US capital income taxation were eliminated, which ordinary income tax brackets would be equally progressive?

This question only considers federal taxes in the United States. Also, by "capital income" I am including dividends, interest, capital gains, corporate incomes and estates. The Chamley-Judd result ...
2 votes
0 answers
51 views

Concept of return on investment but for the state instead a firm

So, following a discussion I had today, I have the following question. If we use the return on investment (ROI) to describe the gain of an investment is there a similar concept not for a company but ...
1 vote
0 answers
347 views

Church tax capital gains tax exemption

My understanding is that churches in the United States, as they are non-profit organizations, are exempt from pay tax which includes capital gains tax. If one were to start a church that had all the ...
0 votes
3 answers
72 views

Leveraging private capital

If an ultra high networth individual, like Bill Gates, Mark Zuckerberg, Carlos Slim, Paul Allen, Elizabeth of Windsor, Amancio Ortega, Liliane Bettencourt, Stefan Persson, Bernard Arnault etc. would ...
13 votes
2 answers
16k views

Solow Model: Steady State v Balanced Growth Path

Okay, so I'm having real problems distinguishing between the Steady State concept and the balanced growth path in this model: $$ Y = K^\beta (AL)^{1-\beta} $$ I have been asked to derive the steady ...
0 votes
2 answers
4k views

Marginal Product of Capital in the Solow Model

In the classic form of the Solow Model: $$ Y=K^\alpha (AL)^{1-\alpha } $$ Describe circumstances in which the marginal product of capital could rise over time, at least for a temporary period. I've ...
2 votes
1 answer
3k views

Solow Model, Growth rate of K/L and Y/L in steady state

I have been given the following setup: $$ Y=K^\theta (AL)^{1-\theta }$$ Where Y = Output, K = Capital, L = Labour and A = Productivity. $$ \frac{\dot{L}}{L} = n $$ $$ \frac{\dot{A}}{A} = g $$ The ...
1 vote
1 answer
346 views

How to find the variance co-variance matrix for 4 assets and market returns using the CAPM?

I understand the process on excel: calculate betas, calculate covariance with $Cov(R_{i,t},R_{j,t}) = \beta_{i,m} \cdot \beta_{j,m} \cdot \sigma^2_m$ where m is the market return and i and j are ...
2 votes
1 answer
55 views

How does an UHN individual leverage their wealth? [closed]

How does an UHN individual leverage their wealth? Do they in fact do so, and should for example Bill Gates' 80 billion be understood as 800 - 900 billion dollar if he leverage his wealth 10 x? ...
2 votes
1 answer
167 views

How to relate real rate of return on capital to bond interest rate: Lagrangian

Suppose that household resource constrain equation is as follows: $$P_tC_t + Q_tB_t+ P_tI_t \leq W_tL_t+R_tK_t+B_{t-1}+D_t$$ where $P_t$ is price at time $t$, $Q_t$ is the price of one bond quantity, $...
1 vote
0 answers
38 views

Total costs as function of labor and quantity [closed]

If I have wage $w = 200$ and rental rate $r = 3050$ on short run, I can assume that $K=1$ and then get the total costs $TC = rK+wL = 3050 + 200L$. Isn't it correct? But what if I also have a cost of ...
1 vote
0 answers
156 views

Returns to scale and specialization

Anyone care to explain how exactly decreasing returns to scale (DRS) can lead to specialization? Having come across a few studies showing how large farm enterprises tend to experience DRS, I came to ...
2 votes
0 answers
64 views

Net of Tax Return on Capital: Definition, Proxy and Data

There is one input factor $k$. The representative firm maximizes profits with respect to employed capital, i.e. \begin{align} \max_k{\pi(k) = f(k)-(r+\tau)k} \end{align} where $f(\cdot)$ is the ...
0 votes
2 answers
50 views

Calculating the growth rate of a stock over a year with imperfect information

I am trying to find the growth rate of a stock over a given year. Let's say I wanted to find the growth rate from today, June 11, 2015 to June 11, 2014. This is easy enough when you have perfect ...
5 votes
1 answer
79 views

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 ...
3 votes
1 answer
75 views

Capital in a credit frictions model

I won't go into detail of this model because it's really just one point that i'm confused about. This question is based on a model by Matsuyama (2007). Agents are deciding whether to invest in a ...
9 votes
1 answer
548 views

Piketty's Return on Capital

How exactly does Piketty et al's method (as in his book) for computing the interest rate over time and countries work? I know that they use reported tax returns, and that some criticize them for also ...
4 votes
1 answer
261 views

Can capital still be paid its marginal product in the absence of a homogeneous capital stock?

Thomas Piketty's best-selling book on inequality, "Capital in the Twenty-First Century" has attracted a lot of criticism on the right for its data analysis. Less well-known, however, is the criticism ...