Questions tagged [risk]

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8
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2answers
1k views

What is the necessity of the FDIC in the US banking system?

A bank's basic function is to "borrow short and lend long". In other words, it borrows money from depositors over the short term, promising to repay it on demand, while it lends most of that money out ...
4
votes
1answer
81 views

Multiplicative factorization of stochastic growth time series--solving for an eigenfunction/eigenvector

I'm trying to understand the tools used/presented in Lars Hansen's Econometrica paper "Dynamic Valuation Decomposition within Stochastic Economies." In a part in the paper, Hansen introduces a long-...
8
votes
2answers
237 views

Will high computing power substitute the certainty-equivalence assumption?

Bloom in a recent JEP paper considers that "the increase in computing power has made it possible to include uncertainty shocks directly in a wide range of models, allowing economists to abandon ...
6
votes
2answers
317 views

Definition of Absolute Risk Aversion

In its Wikipedia article, absolute risk aversion is defined as $ARA = -\frac{u''(c)}{u'(c)}$. However, I have alternatively seen absolute risk aversion defined as half the decrease in consumption ...
7
votes
5answers
552 views

References for particular definitions of risk and uncertainty

I have some doubts about risk vs. uncertainty. I have read the thread "What is the difference between risk, uncertainty and ambiguity" and have skimmed through Knight's "Risk, Uncertainty, and Profit" ...
8
votes
2answers
660 views

How is momentum justified as a common risk factor?

Momentum as a common risk factor? This question is partly a follow-up to another question found here. In this other question it was noted in momentum is difficult to explain as a common risk factor ...
5
votes
1answer
428 views

Independence axiom of lottery when $\alpha \ge 1$

When studying preference over lotteries we learned the independence axiom which goes like this: The preference relation $\succsim$ on the space of simple lotteries $\mathscr{L}$ satisfies the ...
3
votes
1answer
3k views

Absolute vs Relative Risk Aversion

Are there results that says the monotonicity of one measure of risk aversion implies the monotonicity of the other measure? For example, Does constant relative risk aversion imply decreasing ...
3
votes
2answers
229 views

Sanity of lending out made-up money

Background I've done some research to get an understanding into the issue I want to ask about. Regrettably, I found out general descriptions of the mechanism and/or evidently biased explanations, ...