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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5
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29 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 ...
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27 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? Apparently, the investment decision model from Berk Green and ...
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20 views

CAPM and beta for individual stocks

Why do we just assume that the beta is constant for a stock? Could it not very well be the case that the beta is 1.2 in a bear (baisse) market and 0.8 in a bull (hausse) market for an individual stock,...
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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 ...
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2 Questions on this Article-Interview by Vanity Fair with the film-maker of the 'China Hustle' documentary

I recently watched the 'China Hustle' Documentary (you can get a quick synopsis look on the Wikipedia article if you're not acquainted with the documentary, but it may not be necessary to answer my ...
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1answer
56 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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24 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 ...
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221 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 ...
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1answer
23 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 ...
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How reliable is ECB's financial derivatives data?

I am trying to use QSA financial derivatives data retrieved from the ECB's database (this is actually compiled by ECB and Eurostat). To be more specific, the data is: Financial derivatives held as ...
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8 views

How does interest rates impact investment

How does a decrease in interest rates decrease investment rates? This is how I believe a liquidity trap works, not sure if it is correct. Thank you
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24 views

Financial Economics and International Economics

What is the difference of Financial Economics and International Economics? Why, How? What are the implications of these differences? Will a model of international economics suddenly become a model of ...
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1answer
22 views

Risk neutral probability for each of 3 states

I need help to find the risk-neutral probability for states 1,2 and 3 I have two stocks: A and B. The price of A today is 180 and in a year it will be worth 288 (S1), 180 (S2) or 120 (S3); The ...
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2answers
64 views

Clarification on amortization of constant payments

I have found this formula on wikipedia : $$P=C_k(1+i)^ {(n-k+1)}$$ which describe the constant payment that has to be paid every year ($C_k$ is the part of the initial loan that is extinguished with ...
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32 views

How can you profit from junk bonds and selling treasuries, if the junk bond doesn't default?

Junk Bond/Treasury convergence Typically junk bonds, given their speculative grade, are undervalued as people avoid them. Therefore the spread over treasuries is more than the risk of default, by ...
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1answer
46 views

Beginner wanting to learn about economics/finance to explore career options?

I want to explore the banking/financial industries more for potential career options, can you recommend any books/ free online courses and sources in general as a starting point to build on my ...
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1answer
249 views

Who invented these key notions in Finance?

We often give credit to the origins of academic achievements. The Black-Scholes equation or the Gibbons Ross Shanken (GRS) test etc. What about Net Present Value (NPV), Internal Rate of Return (IRR),...
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31 views

Why's a penny stock basically a call option with a strike price of 0 that doesn't expire?

This Reddit comment proclaims: A penny stock basically IS a call option with a strike price of zero that doesn't expire. I suspect there's a high correlation between penny stock investors and people ...
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1answer
35 views

Why does Samuelson say common stocks are better than bonds and preferred stocks during inflation?

I’m reading the first edition of Paul Samuelson’s Economics (1948). In Chapter 6, “Business Organization and Income,” after describing bonds, preferred stocks, and common stocks, he writes: To test ...
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2answers
22 views

Why is buying a put option a cash outflow, but shorting inflow?

What advantage are there to shorting the stock as opposed to buying put option : finance Buying a put is a cash outflow, while shorting is an inflow. One advantage is that you can reinvest this ...
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1answer
34 views

Is it possible that total virtual money i.e. total money in all bank account around the world can increase the total money produced by mankind? [closed]

I am not an expert of economics so please give advise me if I have committed any mistake. This question striked in my mind a few months ago, I tried to think on this question many times but I wasn't ...
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2answers
25 views

What is the best observable proxy for the instantaneous risk-free market interest rate?

I am exploring a number of different models using daily data, of the US economy, and am trying to gather up observable proxies for some of the most important macro and micro variables, and surveying ...
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1answer
72 views

He, Krishnamurthy (2013)

How do you derive equation (10) on page 740 from He, Krishnamurthy (2013 AER)? They say that "Given the log objective function in equation (8), the risky asset household chooses $\alpha_t^h$ to solve ...
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23 views

Value relevance, informative information, Financial statements, IFRS 9

What are the theories that say that the disclosures in the annexes of the report and accounts are less relevant than the figures in the financial statements, is there anything? I've been looking for ...
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20 views

Regarding global economic slow down

I heard in news that world is going through,the economic slow doing may be because of us China trade war or any other reason. and India is one of the country which affected by this slowdown, but ...
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43 views

What is the economic meaning of multiple internal rates of return?

Recall that the internal rate of return (IRR) is the discount rate such that the net present value (NPV) of a project is 0. One interesting complexity of the internal rate of return (IRR) is that it ...
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23 views

Independent sort: Fama-French 2015

While replicating the FF-2015 Size-BE/ME-OP 32 test portfolios I notice missing values in the combination Big,BE/ME 4th quartile, OP 4th quartile. I am a bit puzzled, FF say they independently sort ...
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Why should government bonds have been a part of FSB rules on repo markets? [closed]

Since the financial crash, reforms have been made by the FSB, I would like to know why there is the opinion that government bonds should have been part of FSB rules on repo markets
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6 views

What is the meaning of funded market loans?

I am asking in context of Public Finance, in my book it is written that funded market loans are a type of permanent loans. So what exactly ar
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2answers
51 views

Correlation between nominal bond returns and growth

I read the following passage and the bolded section has me confused: In theory, assets earn a low (or negative) risk premium if they tend to perform well when the economy is weak. When growth ...
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16 views

How to integrate technology lifetime in NPV

I want to calculate and compare the NPV for different ways of producing a good X. The NPV should be calculated for 30 years. The following technologies can be used for production: Technology A, which ...
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26 views

demand for money

I am currently studying the demand for money by Blanchard. this model assumes that the amount of money held is basically related to transaction levels and the the attractiveness of bonds. i.e.: ...
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1answer
33 views

Financial Economics and Corporate Finance

In pg 4 of Principles of Corporate finance (Allen et al, 2017), in the context of explaining financing decisions are less important that investment decisions, there is a line that says: "Financial ...
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Prior to the 1996 Basel Accords, how did banks measure market risk?

Basel Accord amendment was brought into effect in 1998. One of the features were: Allows banks to use proprietary in-house models for measuring market risks How were market risks measured before ...
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1answer
28 views

What is the Relationship between expected return and risk of corporate bonds?

So from my past studies i know that if the interest rate is expected to decrease, then the expected return will increase and the demand for long term bonds shifts to the right. If investors believe ...
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1answer
41 views

Two firms competing ala Cournot

So I´m a bit stuck on this one. There are two firms in the country that sell cars. Both sell Toyotas and they buy their cars directly from the manufacturer, which is Toyota. We can assume that ...
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16 views

Quarterly frequency version of the Fama-French factor models?

All Fama-French (and other) factor models are based on an annual frequency of financial reporting and portfolio holding periods. Is there any research on quarterly factor models in the context of ...
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86 views

Mean Variance Optimization in a Utility Maximization Framework

I'm struggling to gain a broad understanding of Mean-Variance utility theory as it relates to finding the efficient frontier of a group of assets which each have some return and variance. The typical ...
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What are the factors on which value of all resources ( good, silver, cash land etc. ) found in world changes over time?

And followed by, Does it right to say that, if any country become rich then other must become poor and vice-versa. If no, then Is it possible that, in certain conditions, all Nation in the world can ...
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57 views

Yang's Impact on Algorithmic Trading?

Presidential candidate Andrew Yang has published the following policy proposals on his website: 1. FINANCIAL TRANSACTION TAX Financial markets have grown dramatically over the past decades. ...
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Risks Quantification (soft question)

Can anyone please recommend literature (books, papers, whatever) on the topic of risk quantification? By risk quantification I mean financial assessment of e.g. credit or market risk. Free sources ...
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27 views

Assessing the ability of dividend yields to predict stock returns using out-of-sample forecast errors

In Introduction to Econometrics, 3rd Edition, by Stock and Watson, there is a short example about evaluating the ability of using dividend yields (current dividends over price) to predict future stock ...
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46 views

Why has gold dropped during the same week as Deutches Bank faces great difficulties

I chose the phrasing "great difficulties" to be polite. The "capital release unit" seems to be a bit of a desperate action from the bank, coupled with further complications involving bad press made ...
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Application of 'Fermi's Golden Rule' to Economics

Wikipedia says: 'Fermi's golden rule describes a system which begins in an eigenstate, ${\displaystyle |i\rangle } |i\rangle$ , of an unperturbed Hamiltonian, $H_0$ and considers the effect of a ...
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1answer
46 views

How to calculate cost of equity?

So i have this question on leverage and cost of capital: Leverage and the cost of capital Gamma Airlines has an asset beta of 1.5. The risk-free interest rate is 6%, and the market risk premium is 8%....
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1answer
44 views

Under what conditions should the External Rate of Return (ERR) be used instead of Net Present Worth (NPW) and vice versa?

I have just read the concept of both Net Present Worth (NPW) and the External Rate of Return (ERR). This is what I have understood of these two values: NPW is the net discounted value of all the cash ...
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3answers
109 views

Convention / standard methodology for calculating real prices?

Is there an established professional standard used by economic / financial institutions for including or excluding i) the starting year/period, and ii) the end year/period when calculating real prices ...
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1answer
40 views

Financial economics: Bond Price

I know that if the coupon rate on a bond is larger than the yield-to-maturity, then the price must be higher than the par value. Yet I have the bond price equation $P=\frac{c}{y}\left(1-\frac{1}{(1+y)^...
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What does it mean when a discount lender “rediscount[s] reserves”?

I was reading a wikipedia article about the evolution of global financial system: https://en.wikipedia.org/wiki/Global_financial_system#Interwar_period:_1915%E2%80%931944. In the passage about 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 ...