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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30
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6answers
11k views

Why do celebrities get high wages?

In the youtube video Why We Look down on Low Wage Earners the author argued: "economics states that wages are determined [...] by the number of people willing and being able to do a given job that ...
4
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2answers
99 views

How does a refinance allow a mortgage to be repaid?

A textbook I'm reading states (talking about the years leading up to the financial crisis): As long as housing prices increased, these mortgages were secure: the borrower rapidly ...
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0answers
61 views

Example of the change of measure proposed in Hansen (2012)

In this question, I'm continuing to explore the tools used/presented in Lars Hansen's Econometrica paper "Dynamic Valuation Decomposition within Stochastic Economies" (2012). I'm trying to compute an ...
8
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2answers
671 views

Examples of Factors in the ICAPM

The intertemporal capital asset pricing model (ICAPM) is different from the CAPM in that in the ICAPM, utility is conditioned on some set of state variables. The ICAPM results in a multifactor pricing ...
5
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1answer
177 views

Why is JPY considered a “safe currency”?

When the economic prospect around the world feels getting worse and/or getting higher uncertainty, usually the value of JPY is getting higher, because investors are said to start to buy JPY to shelter ...
8
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4answers
237 views

Can absence of inflation be accounted for by a reconfigured class structure?

A previous and oft-heard question asked why no inflation results from the Fed pumping money into the economy. Are we simply seeing a methodical wage suppression, thus no official "inflation," while ...
5
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2answers
232 views

Foundational equations or concepts of Finance

For the other sciences it´s easy to point to the most important equations, inequalities, propositions or concepts that ground the discipline. If I want to explain Finance to a physicist say, what are ...
4
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3answers
338 views

Is money mostly created (out of nothing) by banks making loans?

In the Bank of England's Quarterly Bulletin, 2014 Q1, McLeay, Radia, & Thomas write a pair of articles titled: "Money in the modern economy: an introduction" and "Money creation in ...
7
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5answers
3k views

Does Inflation Make Money Eventually Worthless?

I used this calculator: http://www.buyupside.com/calculators/inflationjan08.htm to estimate the future worth of 100 dollars in 100 years at 2% inflation. Does this really mean that a decent meal at a ...
2
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2answers
786 views

Who owns German debt?

I know that Germany has huge external debt. I don't know how to find out which entities own this and especially which country they belong to.
0
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1answer
56 views

Definition of market to book value?

What is the difference between (market value of equity/book value of equity) ratio and (market value of assets/book value of assets) ratio? In my opinion both measure fairly the same? Is this correct?...
8
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2answers
746 views

How is momentum justified as a common risk factor?

Momentum as a common risk factor? This question is partly a follow-up to another question found here. In this other question it was noted in momentum is difficult to explain as a common risk factor ...
7
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1answer
178 views

Pricing a European call option while absence of arbitrage is violated

Assume that we have a general one-period market model consisting of d+1 assets and N states. Using a replicating portfolio $\phi$, determine $\Pi(0;X)$, the price of a European call option, with ...
5
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2answers
110 views

How could Greece-related worries drive US stocks down about 2% in a day?

Major US stock indices are down ~2% on Jun 29, and it's mostly associated with investor's worries related to the Greece crisis. I understand about possible "chain reaction" and that a lot of ...
5
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2answers
726 views

Dealing with Missing Data when Testing the CAPM

Question How should I deal with missing data when trying to test the CAPM? Specifically, there are some stocks that are newly listed and/or delisted at any time. I don't want to exclude assets for ...
3
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3answers
1k views

Deriving and explaining the weighted cost of capital

The Wikipedia article for the "weighted cost of capital" (WACC) defines the WACC as "the rate that a company is expected to pay on average to all its security holders to finance its assets." What ...
3
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0answers
90 views

Fixes of quadratic utility when probability of decreasing utility is large

In finance and specifically portfolio theory, a popular utility function is quadratic utility $$ u(x)=x-\frac{\lambda}{2}(x-\mu_x)^2 $$ where $x$ is wealth and $\lambda$ is the parameter of risk ...
3
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3answers
112 views

How does a bank create new money when it pays its own staff?

I am reading Ryan-Collins et al. (2013, Where Does Money Come From? A Guide to the UK Monetary and Banking System). I think I understand how banks create new money whenever they make a loan. Using ...
3
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1answer
274 views

How does the fractional reserve banking system work?

I would like to understand better exactly how this works. I have heard a lot recently (particularly since the 2007-08 crash and Occupy movement) about money creation in particular (usually with a very ...
2
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1answer
181 views

Utility theory and portfolio optimization: utility of what exactly?

In finance, a common problem is selection of an optimal portfolio given some constraints (e.g. budget constraint and perhaps nonnegative allocation constraint). One can define the optimization problem ...
2
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1answer
68 views

Clarifying the meaning of market capitalization

I'm new to this kind of topic and I'm trying to get a deeper understand. I read that "the shares' price times the number of shares outstanding is the value of a company (=market capitalization)". ...
2
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2answers
62 views

What's the term for consumers not being able to pay their mortgage?

Is there a term for not being able to pay your mortgage(s)? Like "personal bankruptcy", "consumer default" or something like that?
1
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2answers
68 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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2answers
5k views

How to calculate average buy price when you buy, sell and rebuy

I wanted to get my avaerage buy price for some stocks I bought and see if I made money. So far for just buying and then later selling I have been calculating the avaege buy price using this formula <...