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.
173
questions
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2answers
23 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 ...
0
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1answer
27 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 ...
3
votes
1answer
236 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),...
0
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1answer
25 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 ...
1
vote
1answer
28 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 ...
1
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2answers
17 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 ...
-3
votes
1answer
33 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 ...
0
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2answers
24 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 ...
3
votes
1answer
71 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 ...
0
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0answers
22 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 ...
0
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0answers
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 ...
2
votes
0answers
41 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 ...
0
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0answers
22 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 ...
1
vote
0answers
17 views
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
0
votes
0answers
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
0
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2answers
34 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
...
0
votes
0answers
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 ...
0
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0answers
22 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.: ...
0
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1answer
30 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 ...
1
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0answers
12 views
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 ...
0
votes
1answer
26 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 ...
0
votes
1answer
40 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 ...
0
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0answers
15 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 ...
3
votes
0answers
69 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 ...
0
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0answers
8 views
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 ...
1
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0answers
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. ...
0
votes
0answers
11 views
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 ...
1
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0answers
23 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 ...
-1
votes
1answer
45 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 ...
1
vote
0answers
26 views
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 ...
0
votes
0answers
10 views
How to interpret the (expected) exposure and CVA of an option or a single share
I have a quick (hopefully simple) question regarding the interpretation of the expected exposure of a call option and a single share. I've done some computations on the formula for the expected ...
0
votes
1answer
35 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%....
0
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0answers
16 views
Two periods two agents; savings and interest rate problem
I am trying to answer the following question but not getting the right result
Note: I use v and u interchangeably in my notation
In previous problems I simply used the Euler equation approach in the ...
0
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0answers
6 views
Calculation of Inflation and purchasing power
kindly I'm stuck in this problem instead of many attempts through net present value and other discounted cash flow methods, some one could give me a detailed information and answers on this problem :
(...
0
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0answers
12 views
What is the effect on money multiplier of the following three cases?
Assuming ceterus paribas in each case:
(i)The bank expands its operations in the field of financial derivatives.
(ii) Increasing competition leads to a fall in the transaction costs incurred by ...
0
votes
1answer
33 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 ...
2
votes
3answers
102 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 ...
0
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0answers
7 views
Impact of increasing deferred payment days on independence index?
I am trying to answer the following question.
Let's say I let the deferred payment days from 30 to 90, so that my clients will have more days to pay the good I am selling.
How this change will effect ...
0
votes
1answer
36 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)^...
1
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0answers
18 views
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 ...
1
vote
0answers
21 views
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 ...
0
votes
1answer
36 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})}{\...
0
votes
1answer
18 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 $t=4+1=t=5$
1
vote
1answer
21 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 ...
2
votes
0answers
30 views
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 $\...
4
votes
1answer
317 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?
0
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2answers
43 views
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 ...
3
votes
1answer
121 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 $r_{t+1} = x_t + y_t + \epsilon_{r, t+1}$ ...
2
votes
3answers
90 views
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 ...
1
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0answers
75 views
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 ...
