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
214
questions
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4answers
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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'...
0
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2answers
45 views
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 ...
0
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1answer
26 views
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 ...
3
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1answer
66 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 ...
2
votes
2answers
737 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 ...
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0answers
16 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?
4
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1answer
124 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 ...
0
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0answers
16 views
Harrington Emerson and his 12 principles of labor productivity
Are these principles currently relevant?
Which principles would you add or, on the contrary, exclude?
Which principles are observed today, and which are not? Why?
Which of the principles would you ...
1
vote
0answers
13 views
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 ...
1
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1answer
17 views
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?
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0answers
9 views
How to obtain return on risk-free equities in Cumulative Abnormal Return (CAR)
I am trying to calculate the Estimate expected return of stock with the CAR method.
One parameter (a) is the rate of return on risk-free equities. How do I obtain or calculate this rate? Is this a ...
2
votes
1answer
34 views
$E[F_T] = F_0$ 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,...
1
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1answer
38 views
Arbitrage free implies complete market in general binomial model?
In Tomas Björk's Arbitrage Theory in Continuous Time, there exists this proposition
It seems that to show that the model is complete, we must show that the claims are reachable, i.e. we must find ...
0
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0answers
12 views
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?
0
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1answer
41 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
(...
0
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0answers
28 views
Understanding Mortgaged Backed Security during financial crisis
This is my understanding of the mortgage backed security.Banks will give loans to customers, and then they decide to sell the loans to investment banks and charge a fee with it to earn profit. Now the ...
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1answer
38 views
Can we 'predict' the delta of a stock? The delta of a stock is $\pm 1$ right? [closed]
A stock is like a living organism. A sparrow, say. And we are able to create an emergent-based abstraction of that sparrow, which closely approximates the sparrow itself, accounting for migration ...
0
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0answers
17 views
Explain the statement: "Due to international capital mobility, S and I should not move together."
I read this statement in ADB's e-course on financial globalisation. I have basic knowledge of the economics, but nothing too advanced.
So, what I understood is that since in there is much greater ...
0
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0answers
26 views
Rationalising today's bond market and stock market
As of this writing, the 10-year T note yields 1.437%, on a steady 3-month downward trend (from 1.55-1.75% in recent months) while the S&P 500 is nearing all-time-highs. When these long-term bond ...
0
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0answers
15 views
Disconnect between real and financial economies [duplicate]
I've been reading a lot of articles on how there is a disconnect between how the real economy is currently doing (like falling GDP and high unemployment rates) and how the stock market is doing (...
1
vote
1answer
54 views
How do I calculate the price and risk of a senior tranche?
Say I grant two risky X years loans P(default)=0.1 of 1000 USD. For simplicity let us assume that the interest rate is 0.
I want to sell a X years Senior tranche of 1000 USD and a Junior tranche of ...
0
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0answers
11 views
Was underestimation of the risk of Senior tranches partially responsible for the 2007-2008 subprime crisis?
I am trying to understand this explanation by Professor of Finance Andrew Lo of the 2007-2008 subprime crisis:
Say we have two risky loans, P(default)=0.1 of USD 1000: SP1 and SP2.
An intermediate ...
0
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0answers
14 views
Are these two different cases when it comes to Forex Reserves?
In a forex reserve, what is the difference between "Buying US Dollars to pile up reserves" and "Using FPIs, remittances or exports to build up reserves" ?
How differently do they ...
0
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1answer
144 views
How to handle the missing values' issue of newly listed stocks?
I am trying to test some asset pricing models on 10 portfolios for the period of 2010-2020. The problem is that three of these portfolios included stocks that are newly listed in 2017 and 2018, so I ...
2
votes
0answers
14 views
Quote or price driven markets
Where can I find some details about quote driven markets? Can anybody show any notes or provide some paradigm about what the trader sees when he is about to trade in such a market? They say that he/...
1
vote
0answers
33 views
Maximum of conditional expectation
I have a statistics question for the insider problem in the Kyle (1985) model:
How does one go from
$\max\limits_{X} E[(v-\bar{v}-\lambda(X+u))X|v]$
to
$\max\limits_{X} (v-\bar{v}-\lambda X)X$ ?
1
vote
2answers
360 views
risk aversion and convexity of indifference curve
This is a question from the CFA exam. With respect to utility theory, the most risk-averse investor will have an indifference curve with : (a) greatest slope coefficient (b) most convexity The answer ...
0
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0answers
27 views
Relationship between stock market and exchange rate
I am looking for some references on the relationship between the stock market and the exchange rate, both from the empirical and theorical side.
Is there any theory which suggests a relationship ...
2
votes
1answer
43 views
Econometric analysis of mergers from a company's point of view
I am learning about financial analysis of mergers and acquisitions: most of the models are based on accounting principles and simple assumptions.
I wanted to delve deeper into more statistical/ ...
2
votes
2answers
56 views
Why if the economy will produces too much there will be an increase of prices in nearly all goods and services?
I am taking an online Economics course and not understanding why if the economy will produces too much there will be an increase of prices in nearly all goods and services?
If for example there will ...
2
votes
1answer
49 views
Is there a financial hypertrophy ? Could you make a case for finance?
I've the impression that finance is in hypertrophy. But I'm not an expert on it, so I'd like those who are more knowledgeable than I am to do a [steelman][1] of it.
The things that make me thinking ...
1
vote
1answer
439 views
Is it common to see hedge funds go bankrupt?
Have any hedge funds gone bankrupt as a consequence of the "GameStop scandal"?
And more generally is it common to see hedge funds go bankrupt?
0
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1answer
53 views
Where can I retrieve a complete history of macro economic data annoucements?
I'd like to get the complete ( well at least the last 20 years) history of economic data announcement calendar firstly for US and secondly for G5 countries.
I have found many websites that propose the ...
2
votes
1answer
47 views
How to interpret risk premium
I do not understand the notion risk premium. Let us suppose that John goes to the city by car, but he is thinking about not paying for the parking. If he is caught in the act he must pay the fine. How ...
1
vote
1answer
61 views
Finance vs. financial economics (terminology)
What is the difference between finance and financial economics?
E.g. we have tags for both* and I wonder when to use which, but not only.
*And one more on financial markets – see this thread on Meta ...
1
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1answer
61 views
How does explanatory variables in variance affect unconditional variance of GARCH(1,1)
I have a question about the unconditional variance of a GARCH process, where exogenous explanatory variables are included in the variance.
The usual GARCH models the variance using: $$\sigma^2_t=\...
0
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0answers
19 views
Coefficient omitted due to time fixed effect and multi-collinearity
I am working on a research paper (my first one) where I am dealing with company level unbalanced panel data. There are broadly two types of control variables in the study - a) firm level control ...
1
vote
2answers
70 views
Elasticity of demand functions
I have some question about the elasticity of the demand functions of two different traders/consumers. Suppose that $x_1$ and $x_2$ are the elasticities of the demand functions of these agents. ...
1
vote
0answers
30 views
Free Sources of Implied Repo Rate Data?
Are there freely available historical data on implied repo rates?
In quick review, what's an implied repo rate?
In futures markets, the implied repo rate (also commonly called the IRR) is the rate of ...
2
votes
1answer
58 views
Bothersome Mean/Variance Analysis
I'm currently writing my thesis in which I compare a series of ESG General Equilibrium models. I fell over this proof in Pastor, Stambaugh, Taylor Sustainable Investing in Equilibrium (2019) page 42. ...
1
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0answers
167 views
How is equilibrium reached in CAPM such that the tangency portfolio = market portfolio?
From my research online, when learning CAPM with $n$ risky assets and a risk free asset with return $r_f$, I always see the conclusion that in equilibrium, the market portfolio = tangency portfolio ...
0
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1answer
53 views
Calculation of term structure
I am supposed to calculate term structure of interest rate. I got the table including several bonds with price of the bond, face value and number of years till maturity.
I calculated yield of each ...
7
votes
1answer
178 views
Are no arbitrage models and equilibrium models equivalent?
This YouTube video from WHU (starting from 3:50) claims that no-arbitrage models (such as Black-Scholes and HJM) are equivalent to equilibrium models (such as CAPM or C-CAPM).
He uses the Euler ...
1
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0answers
72 views
Cashflow Risk vs Discount Risk
I'm studying financial economics/asset pricing and I often hear the terms cashflow risk and discount risk but I'm not sure what they mean? The Campbell/Shiller (1988) decomposition includes cashflows (...
1
vote
2answers
56 views
CAPM and beta for individual stocks
Why do we just assume that the β is symmetric for a stock? Could it not very well be the case that the β has a larger leverage (covariance with the market) for example 1.2 in a bear (baisse) market ...
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2answers
48 views
How is buying gold during a recession helpful for the economy?
As far as I can see it, it is a selfish and fearful reaction to bad market conditions that would result in greater deflationary pressure. It is true that it preserves the owner's wealth, but unless ...
2
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1answer
73 views
Volatility and the stock market
In general, it is known that market volatility increases during bear markets while it decreases during bull markets. Why is this the case? It seems strange that volatility is linked to the the general ...
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0answers
29 views
Calculation of theoretical futures value
we form a stock index by using only two stocks in the index.
One of the stocks is the Stock-A. The current selling price of the stock-A is 103 dollars and the second stock is the stock-B. The current ...
4
votes
1answer
233 views
Properties of Financial Markets in Real Life
When studying financial economics, three concepts appear everywhere
Equilibria (investors maximise utility, markets clear and aggregated demand equals aggregated supply)
Completeness (there are ...
0
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1answer
335 views
How do you read currency exchange rates in terms of domestic and foreign currency?
I am having some issues understanding how to read exchange rates.
E is the exchange rate
I read online that if we have for example E\$/€, then the base currency in this case is the dollar and the ...
