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
193
questions
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9 views
Which of the following cases about forex reserve is true?
Case 1- The central bank buys foreign currency to increase its forex reserves. e.g.- the Reserve Bank of India buying US Dollars to increase its reserves. Does that not create a higher demand for the ...
0
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1answer
30 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
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0answers
11 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
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0answers
30 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
64 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
23 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
34 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
45 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
40 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
211 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
37 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
37 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
43 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
vote
1answer
56 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
votes
0answers
13 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
58 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
23 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
110 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
39 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 ...
0
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0answers
88 views
What to include in a unit economics calculation of a car rental business?
I'm doing a unit economics per order calculation on a car rental business and I'm not sure what costs should I include in it. So far I have added CAC, maintenance, labor, car depreciation.
Should I ...
7
votes
1answer
146 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
68 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
51 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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votes
2answers
47 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
votes
1answer
64 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 ...
0
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0answers
26 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
231 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
votes
1answer
141 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 ...
3
votes
0answers
17 views
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 ...
0
votes
0answers
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
0
votes
1answer
35 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 ...
0
votes
1answer
67 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 ...
2
votes
2answers
78 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 ...
1
vote
2answers
43 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 ...
2
votes
1answer
66 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
268 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
votes
1answer
58 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 ...
3
votes
2answers
79 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
vote
2answers
29 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 ...
-2
votes
1answer
38 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
votes
2answers
31 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
82 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 ...
2
votes
0answers
48 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 ...
1
vote
0answers
23 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
2answers
124 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
27 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
47 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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0answers
13 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
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1answer
84 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 ...
