Questions tagged [finance]

Finance describes the management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems, as well as the study of those financial instruments.

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1answer
16 views

Difference between yield curve and term structure of interest rate

Can somebody please explain me the difference between yield curve and term structure of interest rate? Thanks
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Why does financial trading data not include “average” for a day? [closed]

Unix Timestamp,Date,Symbol,Open,High,Low,Close,Volume BTC,Volume USD These are the fields that the financial data provider shows in a CSV file, showing per-day Bitcoin trading data between USD. As ...
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1answer
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Bothersome Mean/Variance Analysis

I'm currently writing my thesis in which I compare a series of ESG General Equilibrium models. I fell over this proof in Pastor, Stambaugh, Taylor Sustainable Investing in Equilibrium (2019) page 42. ...
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1answer
59 views

HARA preferences details

I am searching for some exntensive details about HARA preferences. Where could I find some extensive details for HARA preferences? Something like a textbook or notes
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Nash in demand functions!

I am searching for some types of games that are played in linear demand functions. Altough I hear that there is a vast literatrure for games that are played in the intercept or the slope of the demand ...
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2answers
35 views

What are the pros and cons of a “long stock, short call” position compared to a “short put”?

The profit-loss diagram for the "long stock, short call" position and the "short put" position are almost exactly the same, except that for the former, you may be able to profit ...
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2answers
253 views

Has anybody seen anything this expression before?

Suppose that $z(\cdot)$ is the demand function of an individual (consumer/investor) and $p$ is the price of the commodity/asset demanded. Does anybody know what is the intuition behind the following ...
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1answer
27 views

Calculation of term structure

I am supposed to calculate term structure of interest rate. I got the table including several bonds with price of the bond, face value and number of years till maturity. I calculated yield of each ...
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1answer
44 views

Why is basis point defined as “1/100 of a percent”?

Shouldn't it be defined as "1/100 of a percentage point"? If you take "1/100 of a percent" verbatim, it could mean the following : If 1% increases to 1.01%, that is a 1% increase, ...
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What are some interesting papers using Machine Learning in economics/finance?

I'm about to write my Master's thesis, and I'm really interested in Machine Learning. Do you know any interesting applications of Machine Learning in economics? And preferably, in Finance? Doing my ...
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1answer
20 views

Resources to learn about banking and financial services industry [closed]

Can you recommend resources to learn about how the banks and modern financial system work?
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27 views

Where to learn financial modelling concepts and skills?

I'm looking to learn more about the financial analysis of a business. Things like unit economics calculation, income statement, free cash flow analysis, a valuation calculation, etc. Can you recommend ...
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38 views

How can I represent this observation regarding options in a formula?

By observing how an option's expiration P/L changes as its underlying asset price changes, we can discover the following system of equations: $\begin{cases}S_{Long} = C_{Long} + P_{Short} \\ S_{Short} ...
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1answer
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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 ...
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46 views

Policy ineffectiveness proposition

Suppose, the Aggregate supply is given by the Lucas Supply Curve - $y_t = ȳ + b(P_t - E_{t-1}P_t) + μ_t$ where $μ_t$ is stochastic supply shock (following standard normal error properties). Aggregate ...
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Are there historical cases of country A printing the currency of country B for the main purpose of economic warfare?

I recently read in a news article that a large amount of Libyan banknotes printed in Russia were seized in Malta following an order coming from the USA. Both Russia and the USA have geostrategic ...
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Are no arbitrage models and equilibrium models equivalent?

This YouTube video from WHU (starting from 3:50) claims that no-arbitrage models (such as Black-Scholes and HJM) are equivalent to equilibrium models (such as CAPM or C-CAPM). He uses the Euler ...
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67 views

Cashflow Risk vs Discount Risk

I'm studying financial economics/asset pricing and I often hear the terms cashflow risk and discount risk but I'm not sure what they mean? The Campbell/Shiller (1988) decomposition includes cashflows (...
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Correcting high AR(1) coefficients in dynamic Gordon model

I have just finished my thesis on a heterogeneous dividend expectations model applied to the COVID-19 crisis. However after receiving some feedback there is one last issue I want to resolve. I'm using ...
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3answers
59 views

Is it easier to profit from selling, than buying, options?

Reasons 1-3 and 4-6 below look correct. Is the author's conclusion correct though? To make a profit on the buying side: You have to be directionally correct. The price must go up for calls, down for ...
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1answer
47 views

Can someone please explain how personal savings and fiscal deficit are related in this context?

The lines which i have highlighted is what I want to be explained to me. This is with reference to indian economy
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1answer
53 views

Nelson-Siegel-Svensson method

I am a college student and I have recently learned about Nelson-Siegel-Svensson method which is used by the German Federal Bank to determine the yield curve. I have to generate yield curves of ...
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1answer
22 views

Does anybody knows where I should look for a proxy for consumption to estimate a two factor C-CAPM?

Has anybody seen, any textbook recommendation that refers to the proper proxy for consumption. I am trying to estimate a two factor consumption CAPM, namely we I add a second factor apart from ...
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1answer
64 views

Proof that stochastic discount factor is positive in complete markets

I am looking for a reference (with a proof possibly) to understand why the completeness of markets implies that the stochastic discount factor is strictly positive in the context of intertemporal ...
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2answers
69 views

Macroeconomics differences of 2008 financial crisis and 2020 economic crisis

How is 2020 financial crisis different from 2008 financial crisis? For example, why have stock market indices (e.g. S&P500, NASDAQ-100) recovered so quickly (about 3 months instead of longer than ...
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1answer
21 views

Why would a lay investor care about a Leveraged ETF's Exposure Before and After Reset?

I don't understand the "Exposure Before Reset" and "Exposure After Reset" columns below. To wit, why multiply by $-2$ the: Index Level? The $-2X$ ETF Index Level? Doesn't the Leveraged ETF owner ...
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1answer
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How does this graph show 3000 In the Money June 19 $130 puts traded?

Does this graph imply 3000 ITM 6/19 $130 puts traded? How? I don't see "3000" or "puts" or "6/19".
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1answer
56 views

What determined the “cost of borrowing money” or the interest rate in a gold-based economy

In the modern economy, the central bank decides the cost of borrowing money using interest rates along with other several tools and technic. But I was wondering, in a gold-based economy (not the gold ...
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Somers’D and Gini coefficient: differences

I would like to know what are the differences between somers’d value and the Gini coefficient. I have the following values for factors: ...
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1answer
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Who holds the Reverse Repo and Repo respectively in a Repurchase Agreement?

According to investopedia.com in this definition A reverse repurchase agreement, or "reverse repo", is the purchase of securities with the agreement to sell ...
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25 views

Calculation of theoretical futures value

we form a stock index by using only two stocks in the index. One of the stocks is the Stock-A. The current selling price of the stock-A is 103 dollars and the second stock is the stock-B. The current ...
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32 views

Why is it that when a bank provides loans to people, it is considered a 'liability' on the bank's balance sheet? (Khan Academy Video-Related)

I am watching the Khan Academy Banking Video Series: (https://youtu.be/On3c86V5A_E) . (https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/money-and-banking/banking-and-...
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2answers
28 views

Free Cash Flow and stock prices

There is this concept of free cash flow. Now, I have heard is the amount of money left after you reduce from the net income all other expenses that relate to labor and investment and so on. That is ...
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2answers
38 views

Transparent Fractional-reserve banking as an alternative to the current system

I come from a layman perspective, but I've been trying to understand macroeconomics and finance. Currently I'm struggling with the current topic. Here I'm not worried about the system transition just ...
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2answers
72 views

Who has the unspent money?

I want to know why we don't talk about the money that people have saved because they are not going to restaurants, barbershops, flying, traveling, etc. I have heard the restaurant business is in the ...
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Is there a difference between settlement price vs market delivery price or are they the same thing?

I've been learning about Futures Contracts on Khan Academy (The finance related forum on there is quite old and no one has replied to my questions in the past) and the instructor has used the term "...
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Is there a definition for ROAS that is not dimensionless?

The most common definitions for ROAS are revenue/cost and (revenue - cost)/cost or ...
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1answer
57 views

Value of money (incomes) question - what is the “r” here?

I would like some help with a fairly basic "value of money" question. (I'm very much a beginner in this field so please bear with me.) I'm writing about income changes throughout a decade (2010-2019)....
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1answer
33 views

How is it cheaper to take on debt when taking on a project?

They mention that interest is tax deductible, so you pay lower taxes. But the tax is lower because your EBT is lower than your EBT if you didn't take on debt. I understand that taking on debt benefits ...
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1answer
26 views

How do you read currency exchange rates in terms of domestic and foreign currency?

I am having some issues understanding how to read exchange rates. E is the exchange rate I read online that if we have for example E\$/€, then the base currency in this case is the dollar and the ...
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Black-Jensen-Scholes(1972): Why a portfolio alpha solve the problem of the cross-sectional non-independence?

In this paper:Black F, Jensen M C, Scholes M. The capital asset pricing model: Some empirical tests[J]. Studies in the theory of capital markets, 1972, 81(3): 79-121. It states that One procedure ...
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If a put seller shorted 7500 shares, and a put buyer exercised 49 contracts, why'd the put seller still be short 2600 shares?

I don't understand Wikipedia's example on Pin risk (options). As I colored in green, the put buyer exercises $\color{LimeGreen}{49}$ contracts. The bolded sentence presumes that the trader already ...
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How can I calculate returns for each three investment strategies?

Assume that the price of DF stock went from a price of $104 on March 2 to 146 on April 1. With a current stock price of 146, there is a call option available on the DF stock with an exercise price ...
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1answer
26 views

Risk neutral probability for each of 3 states

I need help to find the risk-neutral probability for states 1,2 and 3 I have two stocks: A and B. The price of A today is 180 and in a year it will be worth 288 (S1), 180 (S2) or 120 (S3); The ...
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Clarification on amortization of constant payments

I have found this formula on wikipedia : $$P=C_k(1+i)^ {(n-k+1)}$$ which describe the constant payment that has to be paid every year ($C_k$ is the part of the initial loan that is extinguished with ...
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1answer
47 views

What is the difference between the discount window and Fed repos?

I'm wondering how the Fed's discount window differs from it's involvement in the repo market. To the best of my knowledge, both are tools used to conduct monetary policy and both are also short-term, ...
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1answer
50 views

Beginner wanting to learn about economics/finance to explore career options?

I want to explore the banking/financial industries more for potential career options, can you recommend any books/ free online courses and sources in general as a starting point to build on my ...
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1answer
254 views

Who invented these key notions in Finance?

We often give credit to the origins of academic achievements. The Black-Scholes equation or the Gibbons Ross Shanken (GRS) test etc. What about Net Present Value (NPV), Internal Rate of Return (IRR),...
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2answers
71 views

Why does Samuelson say common stocks are better than bonds and preferred stocks during inflation?

I’m reading the first edition of Paul Samuelson’s Economics (1948). In Chapter 6, “Business Organization and Income,” after describing bonds, preferred stocks, and common stocks, he writes: To test ...
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Arbitrage checking (one step price tree)

I have a questions on arbitrage. These questions are from my lecture notes. And I don’t understand their some points. Ex1: there is a single step market as follows here, there are two securities ...

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