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Questions tagged [financial-economics]

A branch of economics focusing on monetary activities, in which money of one type or another is likely to appear on both sides of a trade

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Flow budget constraint in a paper by Garleanu and Panageas

I am reading this paper and got confused by Equation (6) in said paper. Suppose there is an investor that can trade in riskless bonds that pay interest rate $r_t$, and holds a market portfolio with ...
Wittgenstein's Poker's user avatar
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Can we use the utility of discounted flows to do asset pricing?

Is it possible to do asset pricing by using the expected utility of the present value of all future discounted cash flows ? I aim to use this utility function to define an optimal portfolio, but I ...
Ignacio Canabal's user avatar
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Are there studies that use the efficient market hypothesis to explain the impact of science in a given market?

I have data on an online market where sellers offer services such as social media bots. I have the following hypothesis: technological development and increased capabilities (e.g., better ...
aedcv's user avatar
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Exponential utility with distance to the average carbon emissions of the industry

I am writing a thesis on sustainable finance and I am considering a game where the 2 players are firms wishing to maximize firm value through an investment in green technology to reduce carbon ...
Ignacio Canabal's user avatar
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What is the proper way to derive risk definitions from utility functions?

In typical mean-variance analysis, the risk-adjusted relative value of an individual asset takes the general form $\frac{\mu}{\sigma^2}$ with further weighting and normalization depending on the ...
Machinus's user avatar
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Portfolio Construction

Consider a one-factor pricing model where the dependent variable is the spread between a 5y Credit Default Swaps index and the 5y Treasury Note, while the factor is a stock market index. Assume that ...
Economicstudent's user avatar
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Does anybody have any multiple choice questions for any of these topics

I have an exam next week and just trying to find some MCQ to do but cannot find any. These are the topics: Week 1 The Consumption-based CAPM Week 2 Risk-Sharing, Portfolio Choice, SDF generalised, ...
john's user avatar
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Why is SDF key in determining asset prices?

I understand that when there is no uncertainty in future consumption future, i.e. Ct+1 = Ct. Then, the stochastic discount factor under no uncertainty is the same as the subjective discount factor. ...
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Can a single dummy variable be made to meet multiple criteria?

Let say I have criteria 1, 2, 3, and 4. I would like the Dummy variable to be 1 only if a certain minimum amount of criteria are met. For example, if 3 of the 4 are true, then Dummy =1. If 4 of the 4 ...
MLux's user avatar
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2 votes
1 answer
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Does the discounted dividend model assume a stock underperforms the risk-free rate?

I'm trying to understand intuitively why the stock market as a whole has outperforms the risk-free rate over time. I started by looking at the discounted dividend model which is one of the few things ...
yyy's user avatar
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Digital Impact on External Audit?

Do any of you have theses, research papers, or articles related to the topic of 'Digital Impact on External Audit'? I am a Ph.D. student, and I have been struggling to find a professor to supervise my ...
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what are the root causes that lead to the 2008 economic recession?

looking at factors that were the roots of the recession in the late 2000s, mortgage-backed securities was one. Can the community reinvestment act be counted as another? Are there any other factors ...
wjkrkdfjkn's user avatar
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what is the process of selling a loan/mortgage?

i was doing some research on the 2008 financial crisis and the term "sold mortgages" and "bundled up mortgages" keeping appearing. i'm relatively new to this subject so i cant ...
wjkrkdfjkn's user avatar
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how does Fed's discount rate affect risk-free rate

So the Fed's discount rate is the rate charged on commercial banks for borrowing funds from it. The question is how does the Discount rate affect the overall level of interest rates in the economy ...
Alex's user avatar
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Failure to see economic depressions and financial fraud due to Shortage of capable quantitative finance & financial engineering experts [closed]

I was trying to understand why economic depressions and financial fraud occurs every now and then. Is one of the reasons because there is lack of people with strong quantitative finance & ...
crazyTech's user avatar
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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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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, ...
Jhonny's user avatar
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Mean regression model question

This question is proving unusually confusing. I would greatly appreciate your help and also your patience...I'm going to upload this question/mark scheme via screenshot. I know that is frowned upon, ...
CormJack's user avatar
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What are the purely financial implications of exempting taxes for the public spending?

I've had this question for quite a long time by now ; wouldn't it be far more efficient in terms of administrative costs and beuraucratic efficiency to exempt public spendings from its taxes? Of ...
MK.s's user avatar
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Concern about Effective Annual Rate in textbook and reality

When reading the seminal textbook of Bodie, Kane and Marcus, 2014, chapter 5, page 123 they have the equation for Effective Annual Rate is It is quite strange to me because the rf(T) should be rf(T)/(...
Phil Nguyen's user avatar
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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 ...
user10478's user avatar
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In the Diamond-Dybvig model, why does the long-term investment not offer a liquidity risk premium?

In the basic version of this model (see link below), both the short-term asset (deposit) and the long-term investment (“technology”) are considered to be risk-free (that is, there is only one possible ...
Leonid Konoplev's user avatar
1 vote
1 answer
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Who controls banks in Diamond's model?

In Diamond's model banks are delegated to monitor borrowers for the investors, in this case, who monitors the banks?
Roberto Palermo's user avatar
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Options, Futures and other derivatives, book by Hull, confusion of currencies

I have a small technical problem with a book by Hull: on the page 7, the first line, in the 11th edition of his book Options, Futures and Other Derivatives (please see the snippet below) he writes &...
user2925716's user avatar
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What does L mean in the money demand equation?

(M/P)^d=L(i,Y) M=Money supply P=Price d=Demand i=Nominal interest rate Y=?Output Does L mean liquidity? Or does it simply mean that the LHS depends on i and Y? Thank you!
povt's user avatar
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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?
okman's user avatar
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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 ...
okman's user avatar
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Why S̅=I(r) and S=I?

Why is S̅ constant when it's equal to I(r)? Why is S inconstant when it's =I? Thank you!
student's user avatar
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Is the viability of a limited supply currency dependent on the equality or inequality of its distribution among potential users?

Presumably, the more unequal the distribution of a limited supply currency among potential users, the more advantage early accumulators have vs latecomers; as soon as the early accumulators begin to ...
Hieronymus Larsson's user avatar
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1 answer
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Human Rationality and Marginal Utility

Does marginal utility consider human irrationality? For example, if the marginal utility of product x > price(x), is the human certainly going to purchase product x is he/she is aware of it?
Eduardo Culloch's user avatar
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ETF market during severe crash

Question: Does the decentralized creation and redemption process make ETFs fragile in case of a market crash? While the idea of ETFs is obviously great, I am a bit skeptical whether the tradeability ...
Papayapap's user avatar
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Fundamental knowledge about invest, stock and economics for self learning [closed]

I am not expertised in the field of economics and stock so I do not know anything about invest. Would anyone please recommend any book/textbook for the initial leaner to get understanding of all these ...
Kieran's user avatar
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2 answers
161 views

who exactly determine market price?

I am aware it's all about supply and demand When a lot of party buying USD with EUR, USD price will increase. EUR will decrease it's stand against USD. And vice versa But who exactly determine the ...
Lorenz's user avatar
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High Kurtosis with normal Distribution

I need help. Here is my problem, I am testing normal distribution on covid, 2008 crisis, and beetween these. So I have 3 timezone and 7 indexes. When I use SPSS to test the normal distribution with ...
user41110's user avatar
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1 answer
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How can I choose how much to invest in each stock of my portfolio?

I'm trying to find a mathematical way to decide what percentage of my capital I should invest in each stock of my portfolio to maximize my profit. Here's my attempt to the solution: Let's say my ...
TheEconomist's user avatar
-2 votes
1 answer
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What does it mean by the statement "a corporation looses money if it produces more than its value"

Recently I was reading a book on corporate finance titled "corporate finance for dummies". Here in the introduction page the author has given a definition for corporate finance, followed by ...
Charles's user avatar
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What is the Likelihood and Impact of US Treasury Bonds being Callable again?

Since 1985 US Treasury bonds have been issued as non-callable. I suspect this had significant impact on investors who wish buy treasuries and also impacted their hedging properties. First, what ...
Clayton Estey's user avatar
16 votes
4 answers
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Most notable papers in Economics in 2021

This question is based on this one in Math Overflow I understand that I can't simply 'translate' the question into the area of economics. Thus, I'm open to improvements on the question framework. Here'...
An old man in the sea.'s user avatar
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2 answers
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Understanding Debt Deflation

I read the following explanation for debt deflation in my textbook: To better understand how this decline in net worth occurs, consider what happens if a firm in 2018 has assets of 100 million (in ...
reasonStore's user avatar
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1 answer
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Rational and behavioral decision in finance investment

Can anyone advise me how to measure an investor's rationality using numbers (indexes for example) in the investment decision? I would like to study this, but I don't know what methodology to adopt to ...
Auby's user avatar
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3 votes
1 answer
130 views

Unresolved paradoxes or puzzles in financial economics

What are some (unresolved) paradoxes or puzzles in financial economics? I am looking for paradoxes or puzzles like for example: The equity premium puzzle (Mehra & Prescott, 1985). Siegel's ...
1muflon1's user avatar
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2 votes
2 answers
782 views

How come there is inflation in a model with no money?

I'm watching the video lectures of Financial Theory (ECON 251) by John Geanakoplos, Yale University. In Lesson 5, Chapter 4 at 33:41, Geanakoplos defined inflation as the ratio of prices between two ...
user141240's user avatar
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0 answers
19 views

Calculating IT Spend Ratio

I have three columns - Sales(Revenue), Employee Count and Industry of n Companies in my sheet, how do I use them to calculate the IT Spend Ratio of these companies using the above info?
WarlockQ's user avatar
5 votes
1 answer
839 views

What would happen if we eliminated fractional reserve banking while expanding the money supply?

In a fractional reserve banking system, banks can lend out more money than they hold in cash. For example, with a 10% reserve requirement, they can lend out 9 times as much money as they hold in ...
afreelunch's user avatar
1 vote
0 answers
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The share of the labor force in GDP (including wages and transfers to social protection, %) [closed]

What do the countries with the highest value for this indicator have in common (the share of labor in GDP, including wages and transfers for social protection, %) ? Conversely, what do the countries ...
Mari's user avatar
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2 votes
1 answer
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the share of the labor force in GDP, including wages and transfers to social protection, %

Why is this indicator (the share of the labor force in GDP, including wages and transfers to social protection, %) used as an indicator that indicates the level of inequality in society?
Mari's user avatar
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2 votes
1 answer
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$E[F_T] = F_0$ implies $p = \frac{1-d}{u-d}$? or is implied by?

From Ch 12 in Hull's OFOD, we compute the risk-neutral probabilities for a futures contract: Later in Ch 17, futures options are valued, and we have the same result: In relation to Chapter 16 and 17,...
BCLC's user avatar
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1 vote
1 answer
259 views

Arbitrage free implies complete market in general binomial model?

Edit: Can complete hold even if $d < u \le 1+R$ or $1+R \le d < u$ ? In Tomas Björk's Arbitrage Theory in Continuous Time, there exists this proposition It seems that to show that the model is ...
BCLC's user avatar
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0 answers
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Does using different Analysis Methods give the same better alternative to choose between economic projects?

Will all analysis methods (PW-FW-AW-ROR-B/C) that we can use for determining project acceptability on an economic basis gives you the correct same-alternative for the same cash-flow always?
Carlos Werbock's user avatar
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1 answer
124 views

Cash flow of a loan (perspective of a bank)

if you receive a loan from a bank, how does the cash flow of the bank look like? I found the following: https://fincomplete.com/ratgeber/artikel/wie-berechnet-die-bank-meine-kreditzinsen-2 (...
gumpel's user avatar
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