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.

Filter by
Sorted by
Tagged with
2
votes
1answer
161 views

Government bonds - the most simple example

I would like to have an example of a common case of buying government bonds. (Wikipedia: it is issued generally with a promise to pay periodic interest payments and to repay the face value on the ...
4
votes
1answer
2k views

Best resources to self-educate myself in economics

I want to learn Economics by myself and I'm looking to build a path with people who're in this field to how and in what order should I learn Economics, I did some research and I've found many ...
4
votes
5answers
2k views

Basic question: why do markets grow?

I apologize if this is gonna be very basic, but I am a beginner. My question is: why do markets (expressed as indices) grow? Is it because money is constantly moved from the real economy into stock ...
2
votes
0answers
58 views

Total market cap in country, and average p/e per country and continent(europe)

sorry I am not sure to post this question in quant stackexchange or in here. I have posted it previously in the below link https://quant.stackexchange.com/questions/18633/total-market-cap-in-country-...
1
vote
0answers
56 views

Subscription Growth Rate Model?

Can someone provide a formula (or set of formulas) for growth models for subscription based businesses? I've looked, but could only find general references about this business model -- no formulas. ...
5
votes
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 ...
0
votes
2answers
131 views

What do banks do with “Repaid Principal”?

When a bank receives payments towards repayment of the principal of a loan, it is called "Repaid Principal". What does a bank do with this amount? Does "Repaid Principal" add up to their pool of ...
4
votes
2answers
75 views

Do the number of days in a month affect monthly return? (seasonality)

When I see data like monthly return on news or tv, I always find the concept a bit strange, because obviously if you calculate monthly return for February and March, all things being equal, the ...
0
votes
2answers
41 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 ...
1
vote
3answers
65 views

Are all country government budgets made up of taxes?

Sorry for my ignorance, but I was doing research and noticed that the US's budget is made up of taxes. Is that for all countries? Where is the line between the economy and the government budget? Are ...
4
votes
2answers
97 views

How did 'crisis' spread through the financial system in '07-'08?

How did 'crisis' spread through the financial system in '07-'08? Specifically, what is the process by which a subprime mortgage impacts the health of the credit markets as a whole? An explanation in ...
2
votes
0answers
160 views

Black-Scholes - Theta formula Futureoption Currencyoption

I cannot figure out how the theta-formula would look like for a future option and a currency option. I know the formula and understand it for an ordinary stockoption - but not for future-option and ...
2
votes
0answers
81 views

What topics are important to analyse a financial product? [closed]

When reading analysis papers of financial product, derivative or stock, tangible or not, I noticed that a lot of those papers seem to have similar structures. This got me to the question if there ...
3
votes
0answers
144 views

Difference between economics and finance? [closed]

What are the differences and similarities between economics and finance theory formally and causally on their name of topics respectively?
5
votes
1answer
270 views

Yield and interest rate?

Are they the same thing? Is yield the annualized return rate? Why when yield rise, yearly return increases but price falls?
4
votes
0answers
298 views

Models similar to CAPM [closed]

I'm using the capital asset pricing model (CAPM) to estimate the values of some assets. I'm curious if there are other (simple if possible) models similar to it. I want to apply as many models on my ...
1
vote
0answers
45 views

Analysis of exogenous shocks on equities

Real Life Problem This one is a tough one and some crowd sourcing seems like a good way to get some feedback. I am trying to determine the effect of Non-Farm Payroll surprises on a subsector of the ...
0
votes
0answers
59 views

Project Financing Evaluation and accounting

While evaluating the whole entrerprise value of Falck Renewables using the discounted cash flow method I end up with a negative continuing value and economic profit due to the negative spread between ...
1
vote
1answer
76 views

Put Call Parity

I am walking on this problem set and can really not get my head around question 8. Especially I don't understand what is meant by " - Since “short XPDR” strategy is the same as “write call, buy put, ...
2
votes
1answer
133 views

ARCH Model - Expectation of Absolute Value

I have a time series model: $$y_t = \sigma_t \epsilon_t$$ $$\sigma_t = w + \gamma|y_{t-1}|$$ Where $\epsilon_t$ are i.i.d normally distributed with mean zero and variance one. Suppose t = $0, ±1, ±...
2
votes
2answers
236 views

How does the Fama and French 3-factor model explain stock covariance?

Does it at all? If so, how? It is understood that size and value play a role in determining returns and there are proposed explanation those these, but what about covariance?
6
votes
0answers
57 views

Futures Market Books

Are there any recommendation for futures market or commodity trading books? I am not interested in trading myself, but would like to have a better understanding of it for my research.
3
votes
2answers
471 views

Modern Portfolio Theory Vs Marginal Utility Theory

I'm currently trying to wrap my head around modern portfolio theory and would love a simple explanation on how it differs from a marginal utility model (if at all). As I am understanding it, MPT ...
4
votes
1answer
47 views

2010 flash crash: cause and rationale for illegality

A British trader has been arrested on accusations of having triggered the 2010 "flash crash" that saw the Dow plummet by 600 points in 20 minutes. This is reported, for example, here (BBC), or here (...
0
votes
3answers
3k views

How do you define the market cap of an ETF?

I'm hesitating between these 2 solutions: The conventional calculation: MCAP = #shares * SharePrice Perform the weighted average of the MCAP of each stock in the ETF MCAP = sum(iStockWeight * ...
6
votes
1answer
46 views

What is the mix of maturities of outstanding US Treasury bonds called?

What is the technical term for the mix of maturities of outstanding US Treasury bonds? Also, is there an "official" source for this information? I tried searching to find out, but not knowing what ...
6
votes
2answers
220 views

What possible reasons could make arbitrage impossible between some markets?

What could prevent arbitrage (not necessarily risk-free) between some markets even when price differences exist?
1
vote
1answer
26 views

Return on two different ways to construct a portfolio

I run the following regression: $$r_i-r_f=a+b(r_m-r_f)+e $$ Now I see that the alpha is not zero and I construct two different zero cost portfolios: 1) 100% long in ($r_i-r_f$) and -b short in ($...
0
votes
2answers
50 views

At forecasting, should I calculate inflation rate daily, monthly or annualy?

For example, 100 dollars is going to be worth less in 30 years, how much less depends on the inflation rate. if we assume a constant annual inflation rate of 3%, should I compound the inflation rate ...
2
votes
1answer
95 views

What assurances are there that the Federal Reserve does not give money to banks?

My understanding of the operation of the United States Federal Reserve Bank is that it invents dollars by a unilateral, unbalanced credit to its own account and then it loans this money to member ...
6
votes
1answer
280 views

Optimal consumption in Merton-like portfolio choice model with constant wage

My Questions Consider the following problem. It is almost identical to the classic Merton portfolio choice problem. Here I'm solving it using the so-called Martingale method. I have provided my ...
2
votes
0answers
107 views

What can we conclude from the overdetermined equity premium puzzle?

The equity premium: A puzzle (Mehra and Prescott (1985)) lays out the basic problem with equity returns: Restrictions that a class of general equilibrium models place upon the average returns of ...
1
vote
0answers
41 views

Evidence of firm borrowing and loans

I'm absolutely not from firm financing and look to read up on the subject, but mostly onto empirical stuff. Standard questions would be: What is the ratio of firms that finance themselves with bank ...
15
votes
0answers
462 views

How do I use the Malliavin calculus to solve for the optimal trading strategy in the classic Merton problem?

How do I use the Malliavin calculus to solve for the optimal trading strategy in the classic Merton problem? In Duffie's book "Dynamic Asset Pricing," he outlines the "Martingale method" of solving ...
1
vote
1answer
73 views

Where is GBP/EUR exchange rate going? [closed]

Very recently, the GBP has been raising against the Euro. I understand this has to do with the EU injecting €1.1 trillion until Sep 2016 and the elections in Greece. My question is: when is this ...
5
votes
1answer
98 views

Finding a maximal growth portfolio

I have the following problem that asks me to solve for the "maximal growth portfolio." Suppose that the equilibrium stochastic discount factor evolves as $$ \log S_{t+1} - \log S_t = \kappa_s(X_t,...
3
votes
3answers
1k views

Why does the profit reaches its maximum value at the equilibrium point?

When we talk about marginal cost and marginal benefit/cost, why does the equilibrium point is the most convenient for the production of a product. If the marginal cost and the marginal benefit/revenue ...
1
vote
1answer
87 views

Why is the martingale factor a martingale in Hansen's 2012 Dynamic Valuation Decomposition?

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). This might be an easy ...
1
vote
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 ...
2
votes
0answers
49 views

How can I construct a process for cumulative returns that is riskless?

This question is a little more specific than the title. Here I use the same notation that is set forth in this other question about cumulative returns (the sum of return observations). That is, let $...
7
votes
6answers
1k views

What are alternative measures of risk?

In finance, the variance of the returns of a security are used as a proxy for the associated risk of the security. I've seen some books include sentences like "if you take variance as a measure of ...
7
votes
1answer
1k views

Deriving the Modigliani--Miller Theorem

In the Wikipedia article on the Modigliani--Miller theorem, it states two propositions. (It gives the cases of with and without taxes. Here I'll just focus on the case without taxes.) The first ...
3
votes
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 ...
5
votes
1answer
861 views

What is the significance of the Hansen-Jagannathan bound?

The Wikipedia article on the Hansen-Jagannathan bound is short, giving only the following: Hansen–Jagannathan bound is a theorem in financial economics that says that the ratio of the standard ...
2
votes
1answer
128 views

Augmented Filtrations and Martingales in the Martingale Representation Theorem

Note: This question is related to the following question about complete markets in continuous time. In the linked question, the answer mentions that complete markets in this setting is a result of the ...
4
votes
2answers
294 views

Black-Litterman---in what way are expected returns hard to estimate?

In the Wikipedia article about the Black-Litterman model, it states that the motivation behind model is that "it is difficult to come up with reasonable estimates of expected returns." Why is it that ...
7
votes
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
votes
1answer
123 views

Why will Australia increase its interest rate only after the US increases its interest rate?

According to this article, Australia will increase its interest rate only when the US increases its interest rate. The Aussie dollar (AUD) keeps going down, which is not very good for importing ...
6
votes
2answers
167 views

Unintended consequences from “fixing” the US financial system

Last year, I read the book The Bankers' New Clothes: What's Wrong with Banking and What to Do about It. The book explained some of the causes of the recent financial crisis of 2007-2009 and gave some ...
2
votes
0answers
55 views

ICAPM when assets' mean returns and variance-covariance matrix are not constant over time

The intertemporal capital asset pricing model (ICAPM), under the usual assumptions, produces a multifactor pricing model like the one described in this question. When and how would it be possible to ...

1
3 4 5
6
7