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.
183
questions
1
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2answers
55 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
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0answers
17 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
53 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
40 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
28 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
30 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
111 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
vote
0answers
67 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
35 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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2answers
45 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
61 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
227 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
28 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
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1answer
27 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
26 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
71 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
37 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 ...
1
vote
1answer
50 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
256 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
49 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
71 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
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 ...
-3
votes
1answer
35 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
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 ...
3
votes
1answer
76 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
votes
0answers
26 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
votes
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
44 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
votes
0answers
25 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
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0answers
20 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
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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
votes
2answers
62 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
votes
1answer
35 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
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
votes
1answer
30 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
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 ...
3
votes
0answers
205 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 ...
1
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0answers
62 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. ...
1
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0answers
28 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
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 ...
1
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0answers
27 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 ...
1
vote
1answer
59 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
votes
1answer
116 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
113 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
votes
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)^...
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 ...
