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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Price discrepancy between the same company's stock on two exchanges
The graph shows a company's stock prices on two exchanges: New York Stock Exchange (NYSE) and Oslo Stock Exchange (OSE). Since these prices are denominated in different currencies, the NYSE price is ...
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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 ...
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How to prove the value of a European Call Option is convex on the underlying’s price?
I know the payoff of a European Call at expiration is $\max\{S_T - K,0\}$, where $S_T$ is the underlying price at expiration and $K$ is the strike price.
I want to prove convexity of the value of a ...
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Funding the American Economy During the Gilded Age
Does anyone know how John Pierpont Morgan Sr. funded the American economy during the Gilded Age? I'd like to learn about his methods and the significant role he played in shaping the economy through ...
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Show withdraw funds from trading account in Google Sheets
I am tracking my portfolio in Google Sheets. I have columns like daily NLV, % and value change etc. This stats are used to calculate some extra data and draw performance charts.
Now, I want to ...
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Stochastic discount factor derivation
What are the intermediate steps to arrive at equation (4) in Lettau and Wachter 2007? Here is the paper: https://drive.google.com/file/d/1Bc0oOqKGm0otYbywf5gdfwzpRpA-D11p/view
I am confused why there ...
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Habit formation ala Constantinides (1990)
Consider the following problem, from Constantinides (1990).
\begin{align}
V(W_0, x_0) \equiv \max_{c, \alpha} \mathrm{E}_0 \int_0^\infty e^{-\rho s}\gamma^{-1}[c(s) - x(s)]^\gamma \mathrm{d}s,
\end{...
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In bond markets, how does the number of banks in an underwriter syndicate grow as they share risk on larger deals?
If I look at a large collection of underwriter syndicates (underwriting green bond issuances), I can see there is, on the whole, a quadratic relationship between the value $v$ in USD that the ...
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What would be a truly universal currency?
I have no clue where to ask this, so here it goes... With the advent of LK99 and its potential uses in recent solutions for modified Alcubierre drive fields, it pushes me to wonder: What if humanity ...
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How to calculate returns for other frequencies?
Hey am newb started studying economics
I have questions about returns of any asset
I know how to calculate annualized returns by (1+returns)^(1/N)-1=annualized_returns
N=number of periods
Let's say I ...
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Do market volatility and optimal trade confirmation strength correlate?
In this video, it is suggested that in high volatility markets, trading algorithms which wait for more confirmation to buy perform better than trading algorithms which buy more quickly, while in low ...
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Implications for the economics literature of possible mistakes in Black-Scholes-Merton option pricing?
If this preprint (which is discussed here on QSE) is correct in showing that there are mathematical mistakes in the Black-Scholes-Merton option pricing framework, are there strands of the economic ...
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Testing asset pricing models with Roll's critique in mind
Roll's critique (Roll, 1977) can be summarized as follows (quoting Wikipedia):
Mean-variance tautology: Any mean-variance efficient portfolio $R_{p}$ satisfies the CAPM equation exactly:
$$
E(R_{i})-...
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Accounting for differences in average teacher salaries, adjusted for inflation and the cost of living in each state
My aim is to determine whether teacher salaries in all 50 of the United States over between 2013 and 2023—adjusted for inflation and the cost of living—differ significantly. I would like to ask what ...
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How to get range of possible returns on market portfolio from two points on minimum variance frontier
I am revising for an exam in financial economics and have come across this part paper question, which has left me completely stuck:
"Consider a CAPM economy with just three risky assets, A, B, ...
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Exchange economy with two agents, what's the competitive equilibrium?
I'm currently doing this assignment but I'm keep getting stuck by this question. I put the Lagrange function for both agents and get the MRS / Price ratio but what should I do from there?
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Corporate finance thesis on financial constraints and investment
I am currently writing a masters thesis within corporate finance and am seeking help to understand some concepts and theories in regards to some regression results i have obtained through empirical ...
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how to forecast smaller balance sheet items
How might you forecast smaller line items on the balance sheet? For example like current liabilities, current portion of long-term debt or notes payable when doing a 3-statement model?
Would it be ...
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Why can't retail investors directly purchase from a stock exchange?
Instead investors must use a stock brokerage as a middleman. Why is the stock brokerage necessary?
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General Solution Differential Equation
We have the following system of ordinary differential equation. To solve this using diagonlsation we do the following. My concern is that my general solution is a subtly different result, I've checked ...
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Meaning of $\frac{A}{r}$ in standard debt model:
Given the model of debt and repayments given by the first-order linear ordinary differential equation (ODE):
$\frac{dD}{dt} - rD = -A$
In this model, $D(t)$ represents the consumer's debt at time $t$, ...
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Fama French 3 factor model paper on asset pricing anomalies
In their paper, "Multifactor explanations of asset pricing Anomalies (1996)" Fama french states in Table 6 that they observe a Momentum effect in their 12-2 portfolio because If I look at ...
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Complete markets and convenience yields
I have been reading some papers on the safety/liquidity of US government debt and got a bit perplexed by the assumptions made in some of those papers. For example, this paper by Mehrotra and Sergeyev ...
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Constructing Valuation As a Function of Condition
Suppose there is an item that deteriorates with use, its condition expressed as a number between $0$ (completely broken condition) and $1$ (perfect condition), for which I want to assign a monetary ...
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[Hull]: Put Lower bound example confusing
I have the 9th edition of hull and reading up on options.
Put options. I am reading Chapter 11 on page 240, section,on Lower
Bound for European Puts on Non-Dividend-Paying Stocks.
I'm confused by the ...
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Testing equality of betas of multiple assets in the Capital Asset Pricing Model
I am trying to understand how I can test whether the factor loadings (Beta) in CAPM for different stocks are statistically different between each other. I.e. I have 3 stocks with different CAPM betas. ...
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Why would a company file for bankruptcy now when it can always do so later?
Taking FTX as an example, I know they took depositors' funds, send them to SBF's other company Alameda Research which then made risky crypto investments and failed.
This made FTX hold less assets than ...
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Impact of US Monetary Policy on the Indian Economy
Why does an increase in the repo rate in the United States have an impact on the economy of India, even when India has raised its own repo rate?
In other words, why is the monetary policy decision of ...
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Ruling out corner solution in portfolio maximization problem
I am new to the econometric world.
I have a portfolio maximization problem
$$
\max \sum_{i}^ n a_{i} x_{i} \quad \text{s.t.} \quad \sum_{i}^n a_{i}=1, a_{i} \geq 0.
$$
I solved the problem but I had a ...
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Budget-feasible set in a portfolio choice problem
I am going through Duffie's Dynamic Asset Pricing book, and already ran into something that confused me on the third page. First, some definitions.
Let $\{1, \cdots, S\}$ be a finite set of states, $D$...
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How do issuers of commodity (eg. oil) futures contracts not continually lose money when the futures curve is in backwardation?
How do issuers of commodity (eg. oil) futures contracts not just continually lose money when the futures curve is in persistent backwardation (noting that the oil futures curve has been in ...
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How to correctly calculate my real salary?
My salary is $900 after taxes. This is quite a large salary for my country. And when my parents found out about it, they said that I earn a lot.
But in my opinion it is not so, because in order to do ...
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Real debt burden
Many economists believe real interest payments-to-GDP is a superior measure of debt service burden than nominal interest payments-to-GDP. My question is why we divide real interest payments by nominal ...
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What is the intuition behind the different information structures from the static to the continuous time ones?
It is a difficult and challenging problem at the same time, to model the information structure in theoretical models of economics and finance. The information structure in most of the literature is ...
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Trying to understand the notion of required return
I have been thinking about the notion of required return lately. I am not familiar with a formal definition, but I have tried to reason my way towards one. Please let me know if my approach makes ...
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Deriving the CAPM: going from utility of consumption to utility of asset returns
Some textbook presentations of the capital asset pricing model (CAPM) take returns on stocks as a primitive and proceed as if agents derive utility from asset returns. Assuming a concave utility ...
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Applied financial econometrics textbook
I am looking for an applied financial econometrics textbook. There are plenty of textbooks that present time series models used in financial econometrics but few of them put any emphasis on ...
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Finance becomes part of GDP - David Harvey claim
David Harvey claimed that the work of financiers shifted to be included in the calculation of national productivity in the 1970s. Previous to this, Harvey claims that finance was excluded from GDP ...
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Help with calculating the taylor rule
Can anyone help me understand where these figures are coming from as my own calculations produce numbers seem to be very different, help and guidance much appreciated.
For example in the first ...
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a question about assumption 1 of tirole 2012 AER paper
FARHI E, TIROLE J, 2012. Collective Moral Hazard, Maturity Mismatch, and Systemic Bailouts[J/OL]. American Economic Review, 102(1): 60-93. DOI:10.1257/aer.102.1.60.
in this paper on page 67, the ...
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Understanding how to estimate the model of Fung and Hsieh (2001) for the hedge funds risk factors
There is an old paper about the risk of hedge fund strategies that it gathers its focus in the trend followers. This is the Fung and Hsieh (2001) paper.
$\textbf{Definition of Trend Followers (TFs):}$ ...
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Trouble Understanding Government's Financial Databases
What does the code field mean in the state of Illinois's financial data?
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Hi there ask a short sale question
I know the proceeds (5175)and initial margin deposit (3105)
But I don't know the total deposit with the broker
Why it is 5175+3105
I was confused that the proceeds include the initial margin deposit, ...
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Why are full reserve banks called such, when they still have depositors?
Why do full reserve banks put all their depositors' money in reserve while depositors still have the right to deposit?
Why is it called full reserve banking when people can deposit their money there?
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Question about money supply and the nominal interest rate
How does an increase in money supply, due to a decrease in the REPO rate, decrease the nominal interest rate?
If an increase in money supply means more inflation, how doesn't inflation lead to ...
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Where can I find estimates of CARA risk aversion
I'm trying to get a sense of what levels of CARA risk aversion are typically considered "reasonable" in the literature for American consumers. Can someone point me to some papers that ...
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What are the practical applications of infinite series to Perpetuity?
I've already know that you can derive present value formula of a perpetuity through infinite series. But, one can argue that it's not really practical since you can just use the derived formula. So, I ...
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Modigliani & Miller with taxes: how is this equation derived?
I am looking at Modigliani & Miller Proposition II with corporate taxes. According to Hillier et al. "Fundamentals of Corporate Finance" (3rd ed., 2017) (here is a link to a slightly ...
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Understanding Modigliani & Miller: different graphs in different textbooks
I am comparing two textbook's presentations of capital structure and Modigliani & Miller propositions. The first one is Berk & DeMarzo "Corporate Finance" (5th global ed., 2019), the ...
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