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Questions tagged [financial-economics]

A branch of economics that analyzes the use and distribution of resources in markets in which decisions are made under uncertainty.

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Testing for the significance of an event

I would like to conduct a similar t-test to the one done in the following paper Ranaldo and Rossi (2007) see Table 4.1. However I only have daily data not intraday data. I have daily data for the ...
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Best financial model to proportionally distribute the company's income to all employees?

I'm planning to start a project of something "innovative". And among some of the parts of the project that I'm thinking about, it's in the term of how money (profits) should be distributed. The truth ...
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Calculate the expected return in CAPM [closed]

c) What is the formula for this? thought it was $$(\alpha_A+\beta_A)E[R_m] = (0.2+1)0.06 = 0.072$$ But it's wrong. And how do you calculate d) ?
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What is this equation for the optimal portfolio? [closed]

Question b. What is that formula? / what does accuracy mean btw? / Regards,
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15 views

What is this equation for sharpe ratio?

Question b.. what is that equtioatn? thought it was $$\frac{w_1E[r_1]+w_2E[r_2]}{w_1^2E[r_1]+w_2^2E[r_2]+2cov(r_1,r_2)w_1w_2}$$ But I got wrong for that. ;s
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How is this equation determined? [on hold]

Question b.iii. Just wonder what the equation is. The answer is $$-101+101+F+\frac{104.03}{1+3%}=101.942$$ And i don't get it.. Why $$-101+101$$ ?
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1answer
19 views

Analyzing vast economic/financial data

I have data science projects coming up in a university course in the upcoming quarters, and I was interested in using financial/economic data since there is so much of it. Also, I do have a hobby for ...
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22 views

Why not 2cov in this question?

Okay, So this is the whole question. It's a bit far. But i just have one question about it: So in question c) we have the equation for the sharpe ratio as: $$\frac{E(w_1R_{1A} + w_2R_{2A})}{\...
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Arbitrage pricing theory holds. What do we prefer?

So I need help to figure out the d.i and d.ii. (This is an old exam, so I don't get credit for this or such..) THanks!
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1answer
14 views

Bond pricing, why t=3?

In question c-f. .Why do they calculate $t=3$? When they say $t=4$ at the beginning and then next year is $t=4+1=t=5$
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1answer
16 views

Bond pricing, compute YTM … why t not = 2?

Consider a two-period corporate bond with the following characteristics. The bond was issued at $t = 0$ with face value $FV = 100$ at $t = 2$. In period $t = 1$ and $t = 2$ coupons of $5$ are paid out ...
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Interpreting quartile ranges of two asset returns

So I have 2 time series of asset returns, of which I calculated the quartiles. The first asset is slightly negatively skewed (-0.08), the second a little more negative (-0.16). The first asset has a ...
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Showing that a market model has arbitrage and describing martingales

This is an exercise which I came upon while studying an introduction to financial mathematics. Exercise : Consider the finite sample space $\Omega = \{\omega_1,\omega_2,\omega_3\}$ and let $\...
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10 views

Characterising risks of an corporate bond etf

I been looking at different conservative investment strategies such as 50/50 "interest fund"/"global stock fund" and "the permanent portofolio". As an alternative I was trying to look for corporate ...
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1answer
268 views

Why stochastic dominance is “stochastic”?

I think the CDF is pretty much fixed, so the FOSD (first order stochastic dominance) is pretty much non-stochastic. Why does it have a "stochastic" in its name?
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Why are future expenses considered less costly than expenses in the present?

I understand that future income is less valuable than income in the present because of the concept of present value, where money available today can be invested to earn interest or can be spent to ...
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1answer
96 views

Show that the dividend price ratio is a ARMA(p, q) process

Let the log dividend growth evolve according to $\Delta d_{t+1} = \epsilon_{d, t+1}$ where $\epsilon_{d, t+1}$ is just white noise. Let the log returns be $r_{t+1} = x_t + y_t + \epsilon_{r, t+1}$ ...
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3answers
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Mean vs. variance - which is dominant?

I am currently trying to gain some basic understanding of the mean-variance tradeoff. However, since I do not have an economic education background, I am struggling with some issues. Currently I am ...
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Value of companies with circular ownership [duplicate]

Given two companies, total assets of $100 million each. Company 'A' owns \$50M of company 'B'. Company 'B' owns \$50M of company 'A'. If you look at the value of both companies do you ...
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1answer
22 views

Are there any countries in which post-dated cheques are commonly used in trade?

I am reposting from the Personal Finance & Money Stack Exchange because my question was flagged as being about economics and off-topic. The post-dated cheque is the most common payment instrument ...
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39 views

What are theoretical justifications for M2/GDP to be a financial development index?

How one can theoretically justify use of M2/GDP as a financial development index? I know that M2/GDP is a common measure for financial development but I try to find its theoretical confirmation. I ...
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31 views

Is this way of modeling undisclosed debt correct?

I am woking with a model like the one in Alfaro and Kanczuk (2006), that is in turn based in Arellano (2008), where sovereign´s preferences are given by: that in case of not defaulting is subject to: ...
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1answer
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Devising a model for inflation for a closed points system

I am working on a project that involves points. The idea is that users will earn points and redeem them for certain rewards. The means via which the users earn are fairly limited (They can attend a ...
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2answers
45 views

Reading list for physics undergrad who'd like to cover the economics related to the hedge fund/ private equity field

I have had relatively little exposure to economics( nothing more than EC101) and would greatly appreciate help in answering the following questions: Which sections of economics are more or less ...
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What accounts for the high GDP of the United States?

Wikipedia defines GDP as: Measure of the market value of all final goods and services produced in a period (quarterly or yearly) of time. So, I take it that the total value of all goods (and ...
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Is CDAP always better than DDAP for efficieny purposes?

When is it ever better to use a discrete double auction procedure or call auction over a continuous double auction procedure in terms of achieving efficiency for AD-Securities? Does DDA get quicker ...
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1answer
61 views

Proof of DCF model by mathematical induction

I am confident with the concept of DCF. However, I wanted to check the following proof given that if investors hold a share in $ t $, sell it at $t+1$, receive dividend $\ D_{t+1} $ and the price at $...
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1answer
26 views

Compound interest ($r$ in terms of $\frac{dA}{dt}$)

Suppose the amount of money in bank account that is compounded annually is given by $A(t)$. The annual rate of interest is $r$. Find a relation between $\displaystyle\frac{dA}{dt}$ and $r$. My ...
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1answer
20 views

Growth in dividends will equal growth of earnings

Let $Div_t$ be the dividend per share at date $t$. $\displaystyle Div_t=\frac{\text{Earnings}_t}{\text{Shares Outstanding}_t}\times\text{Dividend Payout Rate}_t$ ------------------- (1) My textbook ...
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2answers
37 views

Why does the yield curve flatten?

I find the yield curve for bond rates confusing. For example, the current yield curve for US treasuries is shown below: The difference between the 10-year bond and the 30-year bond is tiny, just 0.15%...
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2answers
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Prove that if a bond trades at a discount, its yield to maturity will exceed its coupon rate

Can someone give me a mathematical proof of this statement? If a bond trades at a discount, its yield to maturity will exceed its coupon rate.
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Present value of perpetual rise in income

If a student successfully completes an MBA program in 2 years, he will earn $50,000 more than what he could earn without the degree for his lifetime. Calculate the present value of this perpetual rise ...
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How to determine market worth of a product?

We've a virtual market where different resources are put up for sale. Sellers determine the amount of stock to sell, and price per unit. Some resources are available for sale in more stocks than ...
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71 views

Good Europe focused economics blogs

Who can recommend any good blogs or other news sources on economics with a European view. I'm looking for something in the vein of FT, which is already an extremely good source, but I'd like to ...
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1answer
30 views

Why regulate the financial world rather than take over some of the services?

The government regulates some of the behavior of financial markets. Understandably, especially considering the crisis. But would it not be easier if the government overtook some of the aspects of the ...
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Kiyotaki-Moore v.s. Bernanke-Gertler-Gilchrist - what's the difference?

What are the key differences between (i) a model which features a "Kiyotaki-Moore collateral constraint"; and (ii) a model which incorporates a "financial accelerator" (a la Bernanke-Gertler-Gilchrist)...
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1answer
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Gold charts on different currencies

I have this two charts of gold prices for the last 60 days. One is in Dollars and the other in Euros. Why they are not an exact match?
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What are some examples of places with steady state economies?

Referring to economies that over a long period of time have remained constant and not had significant growth or decline, not necessarily where this was intentional. How are they compared to different ...
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1answer
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what are the categorization by industry in economics?

I wanted to know what industries are there from an economics point of view, and how each industry branches into different parts. Just categories and names will do , or if you can point to a resource ...
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Resources for periodical economics feed [duplicate]

I'm learning economics and I want to read/hear the world through the lenses of any economist. What are the best periodical economics news feeds? It could Magazines such as theeconomist.com Podcast ...
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Consequences of a positive uncovered interest rate parity (UIP) spread for an emerging market economy

Empirically we observe that the uncovered interest rate parity (UIP) does not hold; in fact the exchange rate adjusted return on an emerging market bond is higher than the return on US bonds; I know ...
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Approximate factor model: Weakly correlated and eigenvalue

To my best knowledge, in Ross's APT, it is assumed that the pricing model is the exact factor model. Chamberlain (1983 ECTA) expanded it into the approximate factor model. In the exact factor ...
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2answers
56 views

Variance of a rational forecast

In Chapter 24 of Richard Thaler's book Misbehaving, he writes: An important property of rational forecasts---as a stock price is supposed to be---is that the predictions cannot vary more than the ...
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OLS coefficients change signs at some point in time

I am running an OLS in which the dependent variable is the sum of daily log returns on S&P 500 and as independent variables I use some variables which I believe "drive" the SPX returns. My data ...
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How to study the relationship (correlation) of the non-normal probability distribution function?

In my research, I am examining the relationship of one financial asset and a stock market. Since it's volatile we can say that the probability distribution function of the two is not Gaussian. Cross-...
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1answer
71 views

Hotelling rule and the shadow prices in a peg

Hotelling rule states that at equilibrium $$\frac{\dot p(t)}{p(t)} = i$$ Meaning that rate of change of the price at time $t$ should be equal to $i$, the interest rate. Assume that the government ...
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When is the pegged price equal to the market price

Suppose the government pegs an exhaustible resource, at a price $P^*$. I found out that the shadow price (initial price of the resource if government didn't peg) would be $$Q_t = ( \sigma i S_t )^\...
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Monthly savings plans

Monthly savings plans in stocks or funds are typical investments for many people. On aggregate, these plans generate a large demand on the underlying assets, often around the end/beginning of a month. ...
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1answer
182 views

Difference between Negotiable Instrument and Financial Asset

So here are the two pages I was reading to try and understand : Negotiable Instrument and Financial Asset Confusion started as both pages use Certificates of Deposits(CDs) as an example.So a CD is ...
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Why is a credit constraint consider as exogenous in this situation?

I'm looking at a Waller and Boel (2015) and I fail to see how a credit constraint can be consider exogenous in this situation: To model credit, we assume agents are allowed to borrow and lend ...