Questions tagged [financial-markets]
The financial-markets tag has no usage guidance.
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what are the root causes that lead to the 2008 economic recession?
looking at factors that were the roots of the recession in the late 2000s, mortgage-backed securities was one. Can the community reinvestment act be counted as another? Are there any other factors ...
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what is the process of selling a loan/mortgage?
i was doing some research on the 2008 financial crisis and the term "sold mortgages" and "bundled up mortgages" keeping appearing. i'm relatively new to this subject so i cant ...
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A question about real value of assets of firm when price level decreases
I am a beginner at economics and am reading Mishkin's famous book The Economics of Money, Banking and Financial Markets(eleventh edition). In chapter 12, Page 271, when the author analyzed the causes ...
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How to prove the value of a European Call Option is convex on the underlying’s price?
I know the payoff of a European Call at expiration is $\max\{S_T - K,0\}$, where $S_T$ is the underlying price at expiration and $K$ is the strike price.
I want to prove convexity of the value of a ...
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When Cathie Wood says the Powell has 20x rates vs Volker 2x rates in 1981, is this the right way to look at it?
Cathie Wood regularly says the FED today gone too far with rate rises, saying they have raised rates 20 times from their 0.25% lows in 2020, where as in the early 1980 Volcker only doubled rates from ...
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Do market volatility and optimal trade confirmation strength correlate?
In this video, it is suggested that in high volatility markets, trading algorithms which wait for more confirmation to buy perform better than trading algorithms which buy more quickly, while in low ...
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Implications for the economics literature of possible mistakes in Black-Scholes-Merton option pricing?
If this preprint (which is discussed here on QSE) is correct in showing that there are mathematical mistakes in the Black-Scholes-Merton option pricing framework, are there strands of the economic ...
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Persistency on Exchange Rates
Assume that, the exchange rate between US dollar and UK pound has been increasing without any deviation. Do we observe the same phenomenon as with the case of accelerationist phillips curve where ...
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Could we bridge information design theory with the market microstructure games?
I have a specific question on information design, communication or Bayesian persuasion games. The literature focuses in the impossible idea of someone who is either an omniscient and benevolent ...
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Increase In Nominal Income Without Increase In Money Supply
I couldn't understand the logic behind the increase in nominal income without changing the money supply, which I confronted with when I was studying financial markets on the relationship between money ...
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Mechanism Design and Self-Trade Cancellation
In the case of mechanism design, i am looking to estimate the welfare gains due to difference in rules of market clearing function. If in the price-time priority order book, the incoming aggressive ...
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Placing buy orders above the current market price in the stock market
Consider this hypothetical situation:
Let's say that microsoft stock is currently being traded for 200 dollars and via my broker I place a buy order of one stock for 1000 dollars. I imagine there is ...
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How are stock prices determined in the following cases?
I looked at this question already. I know there is an order book with bid and ask and that the price is updated when a match occurs. But I have two questions:
What happens when the bid is higher than ...
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Fuel prices spot vs forward
The commodities market is , for the most part, a forward one. How come then prices of gasoline in gaz stations jump almost overnight whenever a geopolitical tension arises?
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What is the Likelihood and Impact of US Treasury Bonds being Callable again?
Since 1985 US Treasury bonds have been issued as non-callable. I suspect this had significant impact on investors who wish buy treasuries and also impacted their hedging properties.
First, what ...
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Are retirement funds part of the capital market?
I was reading an article, which mentioned the withdrawal of high sums (billions) from retirement funds to ease the crisis caused by the covid-19.
It also said that the capital market will become ...
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What underpins the argument that commercial paper is systemically important?
The Financial Stability Report recently had a paper on money market instruments and in one of the sections was a line that read:
CP rates enter as inputs into credit-sensitive benchmark rates, and
...
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Was the financial crash of 2008 caused by top graduates of the American Ivy Leagues working at wall street banks?
From this article by Lisandro 'Leloy' Claudio, a Philippine/a Filipino professor of history, politics, South & Southeast Asian Studies (and not necessarily of finance, economics, mathematics or ...
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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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Are short squeezes becoming more common, and if so, why?
This year I have read about short squeezes more often than any time in the past. Are short squeezes becoming more common, and if so, why?
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Are there any notable exceptions to the Impossible Trinity theory?
I am referring to the theory presented on Wikipedia and The Economist that states:
The impossible trinity (also known as the trilemma) is a concept in international economics which states that it is ...
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Evidence for or against the Efficient Market Hypothesis in financial markets and the currently dominant view
The Efficient Market Hypothesis seems to draw quite a lot of attention in popular debates, and in general during discussions on Behavioral Finance, where it is often seen as not entirely correct.
I ...
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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/...
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Order-driven vs quote-driven markets
What is the difference between order driven and quote driven markets? Is there any theoretical microstructure book that gives the intuition behind the types of markets with respect to the orders that ...
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Is the fundamental analysis also a self-fulfilling prophecy?
John J. Murphy in the first chapter of his book "TECHNICAL ANALYSIS OF FINANCIAL MARKETS" says that concerns regarding fundamental analysis being a self-fulfilling prophecy are seldomly ...
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Why are shares exempt from GST?
Why is the financial trading sector exempted from consumption taxes?
For example, shares seem to be exempt from GST in both Australia and Canada. What is the intention behind this? Is it common for ...
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Why do stocks that don’t pay any dividends change price when the company does better?
I don’t understand why (non-dividend paying) stocks increase in price when a company is successful; is it just because everyone expects that everyone else will find it more valuable because the ...
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Does the Fed/SEC have tools to address shock-propagation from correlation of fund flows?
Premise
In 2017, passively invested assets totaled 37% of mutual funds and ETFs; by 2021 this number is closer to 50% if not more. After the market downturn in (March) 2020, the Fed updated their ...
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Why is South Korea classified as an Emerging Market economy?
I have recently found out that South Korea is part of the MSCI Emerging Markets Index, and that the South Korean Won (KRW) currency trades as a non-deliverable currency. Furthermore, the South Korean ...
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What is the intuition for the potential loss of market makers on LS-LSMR?
What risk do liquidity providers take on when they provide liquidity to an LS-LSMR automated market maker pool?
How much can they lose?
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Why Hanson's logarithmic scoring rule define an Automated Market Maker?
Why Hanson's logarithmic scoring rule define an Automated Market Maker?
We have in this paper
in page 47, section automated market maker, that this scoring rule can "easily" be turned into ...
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why federal fund rate vs treasury bond yield generally move in the same direction?
My own thought is, if the fed lowred federal fund rate, peoole should look for investment with greater return, like treasury bond. More demand=decline in yields but why do they generally move in the ...
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What is the correct way of calculating the "average" price based on the "Open,High,Low,Close" daily trade fields?
Open,High,Low,Close
I have these fields, representing the "opening" amount, the highest for the day, the lowest for the day, and what it closed at.
I'm trying to determine the "average&...
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Where does investment originate from in the circular flow model?
The above image is from my macroeconomics textbook.
I’m struggling to understand the “financial markets” corner. If financial markets refers to banking and perhaps the stock market, is it true that ...
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Literature on DSGE models featuring a financial sector
I recently read a ECB primer on DSGE models featuring the financial sector and became interested in the field. I also started to read some of the earlier literature in that field (e.g. Gertler & ...
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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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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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Theory behind financial flows not going to the most developing nations even though they have the highest growth rates
I remember reading a bunch of articles on this a few years ago, but I can't find any of the references any more.
It has been a while since I looked at this, so here is a rough paraphrase of the ...
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What does the Fed mean by "smoothening money market functioning"?
In many recent interviews, Fed Chairman Jerome Powell has repeatedly mentioned that ensuring the smooth functioning of money markets is a key goal of the Fed's recent monetary policy actions. I want ...
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Does the federal reserve create any type of deadweight/welfare loss?
In microeconomics, we learn that when a good is overproduced or under produced, there is a dead weight loss associated with it. It seems like the same concept would apply to macroeconomics, where the ...
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How does the GDP multiplier work?
When we learn about the GDP multiplier, it is portrayed as 1/MPS, because savings are supposedly a leak out of consumer spending. However, what I don't understand is aren't those savings spent anyways ...
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Why Does Deficit Spending Work Without a Liquidity Trap?
My understanding is that in a functioning economy, the financial market clears when the nominal interest rate is above zero. It is only when it reaches zero that a liquidity trap occurs and the ...
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What value do virtual traders of commodity add to the market?
Many if not most companies trading in commodities are only trading them on paper. They will not use the commodity they are buying and can not take deliver of the physically commodity.
What value do ...
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CDO and Nonpositive Equity Questions
I have two questions about statements made in this video: https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/bank-bailout/v/bailout-2-book-value
At 6:25, the video ...
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If a CDS is x%, why does this mean $(1 - x)\%$ probability of default?
At 11:52, Tim Bennett says:
Well let's have a look at
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some prices. Currently the cost of
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insuring Greek debt is in excess of
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$\color{green}{2,000}$ basis points. ...
user4020
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How to Calculate Bond Yields
According to Bloomberg, the coupon rate on a 10-year UK government gilt is 4.75%. Bloomberg also states that the yield is currently 0.47%, and the market price £144.57.
The UK Debt Management Office (...
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Understanding Bond Yields
According to Bloomberg, the coupon rate on a 10-year UK government bond is 4.75%.
Bloomberg also states that the yield is currently 0.55%, and the market price £143.51.
But if the following formula ...
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Convex transaction costs
Why do we assume convex transaction costs in theoretic models? What is the intuition and the strict definition of this assumption?
Well, I have in mind the Glosten model in 1994. Neither he provides ...
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Why'd the lender suffer the collateral haircut, not the borrower?
In the quote below, why'd Steve offer $10.5, when your Air Jordans are worth \$11? Why wouldn't Steve (the lender) assign the collateral haircut to you, and require you to pay him \$11 + risk premium? ...
user4020
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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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