Questions tagged [financial-markets]

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Can a single dummy variable be made to meet multiple criteria?

Let say I have criteria 1, 2, 3, and 4. I would like the Dummy variable to be 1 only if a certain minimum amount of criteria are met. For example, if 3 of the 4 are true, then Dummy =1. If 4 of the 4 ...
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Why do accumulating ETFs grow linearly instead of exponentially?

I am learning about investments and I often read that accumulating ETFs re-invest the dividends by buying more stocks of the underling assets. The advantage of this is that by doing so they take ...
Federico Gentile's user avatar
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What, quantitatively, is the problem with treating two conceptually nearby trading indicators as independent pieces of evidence?

Suppose you come across a financial trading system which starts by checking a security's 200-Period Moving Average, either by itself or in conjunction with the security's price data, perhaps signaling ...
user10478's user avatar
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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 ...
wjkrkdfjkn's user avatar
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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 ...
wjkrkdfjkn's user avatar
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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 ...
vent de la paix's user avatar
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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 ...
Nicolas Torres's user avatar
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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 ...
MicroscooterMan's user avatar
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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 ...
user10478's user avatar
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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 ...
Tunay Sabri Yüksel's user avatar
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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 ...
Tunay Sabri Yüksel's user avatar
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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 ...
shoonya's user avatar
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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 ...
Keep_On_Cruising's user avatar
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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 ...
timtam's user avatar
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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?
Averroes's user avatar
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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 ...
Clayton Estey's user avatar
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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 ...
Arash Howaida's user avatar
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1 answer
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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 ...
BCLC's user avatar
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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 ...
Harshita Singh's user avatar
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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?
Franck Dernoncourt's user avatar
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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 ...
Cristi B's user avatar
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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 ...
Ishan Kashyap Hazarika's user avatar
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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/...
Nav89's user avatar
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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 ...
Hunger Learn's user avatar
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2 answers
105 views

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 ...
Akshay Prabhakant's user avatar
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1 answer
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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 ...
benjimin's user avatar
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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 ...
maxbear123's user avatar
1 vote
1 answer
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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 ...
Arash Howaida's user avatar
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1 answer
1k views

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 ...
Jan Stuller's user avatar
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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?
Dylan Kerler's user avatar
1 vote
0 answers
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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 ...
wainwain's user avatar
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1 answer
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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 ...
isaac kim's user avatar
1 vote
3 answers
380 views

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&...
Jelani's user avatar
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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 ...
General Nuisance's user avatar
4 votes
1 answer
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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 & ...
Joe's user avatar
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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 ...
Niklas Rosencrantz's user avatar
2 votes
1 answer
107 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 ...
Tan Yong Boon's user avatar
1 vote
1 answer
26 views

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 ...
krishnab's user avatar
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2 votes
2 answers
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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 ...
Tan Yong Boon's user avatar
2 votes
0 answers
47 views

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 ...
johnsmith13579's user avatar
1 vote
1 answer
348 views

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 ...
johnsmith13579's user avatar
1 vote
0 answers
48 views

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 ...
johnsmith13579's user avatar
1 vote
1 answer
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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 ...
paulj's user avatar
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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 ...
user27433's user avatar
1 vote
2 answers
69 views

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 11:52 some prices. Currently the cost of 11:57 insuring Greek debt is in excess of 12:02 $\color{green}{2,000}$ basis points. ...
user avatar
0 votes
2 answers
190 views

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 (...
Ryan Walter's user avatar
-2 votes
2 answers
133 views

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 ...
Ryan Walter's user avatar
1 vote
0 answers
72 views

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 ...
Hunger Learn's user avatar