Questions tagged [finance]

Finance describes the management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems, as well as the study of those financial instruments.

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23 views

What type of dividends are there [closed]

Then came Meredith Whitney, with news. Whitney was an obscure analyst of financial firms for an obscure financial firm, Oppenheimer and Co., who, on October 31,2007, ceased to be obscure. On that day ...
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Can I test Granger causality in cyclical components?

I want to test Granger causality test in cyclical components of GDP and private credit, obtained with Christiano-Fitzgerald filter in annual growth rates of quarterly data. The main purpose is to find ...
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22 views

How to interpret the Alpha in a multi-factor model?

For the CAP-M, the alpha can be interpreted as the excess returns of a benchmark index. However, how should we interpret the alpha in a multi-factor model, like Carhart's 4-factor model? Does it still ...
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21 views

Is there any reference for labour finance?

Is there any recent reference for labour finance, in which labour finance relating to financial statements? And what are the alternative name for "labour finance"?
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32 views

How do I calculate the price and risk of a senior tranche?

Say I grant two risky X years loans P(default)=0.1 of 1000 USD. For simplicity let us assume that the interest rate is 0. I want to sell a X years Senior tranche of 1000 USD and a Junior tranche of ...
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84 views

Internal rate of return

Trying to finding the internal rate of return R: Net present value of costs is $\ Y(s)$ Net benefit is $\ Y(s+1)-Y(s)$ in every period t up to$\ \infty $ The answer is given as $\ R=\frac{Y(s+1)-Y(...
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19 views

Event Study - Definition of Estimation Window (Trading Days vs Non-Trading Days)

I am currently conducting a event study for my research project on M&A. I have all data available and want to use https://www.eventstudytools.com/. But there is one clear which is not apparent to ...
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14 views

Are these two different cases when it comes to Forex Reserves?

In a forex reserve, what is the difference between "Buying US Dollars to pile up reserves" and "Using FPIs, remittances or exports to build up reserves" ? How differently do they ...
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31 views

What makes a shareholder a “shareholder of record”?

In public companies filling some reports with the SEC (10K for example), there is a mention of the number of shareholders of record. Example: "As of April 20, 2021, we had approximately 40 ...
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Question on the choice of boundary in the CUSUM test when we make some resampling

Question on the choice of boundary in the CUSUM test when we make some resampling We are considering to make a CUSUM test for some economical time series $𝑋=(𝑥_1,..,x_n)$. Suppose 𝑋 contains many ...
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71 views

Can an appreciating currency lead to inflation?

If a currency, e.g. the rupee (INR), is appreciating against, say, the USD, it possibly means that there is a high demand for the former. India could have net exports, high remittances, increasing ...
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38 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 ...
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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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82 views

Net present value

I have a textbook which contains a question which is as follows. Conveniently, the textbook doesn't have an answer key: Calculate the net present value of the following cash flows: You invest \$2000 ...
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78 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 ...
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26 views

How to understand: interest income is a moving average of past interest rates

I encounter this question in the paper by DRECHSLER et al. (2021) (Banking on deposit). How to understand that "interest income is close to a moving average of past interest rates, consistent ...
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33 views

calculation of the real domestic return of a foreign stock

I would like to calculate the real domestic return of a foreign stock What I know Real price is $$P_{Real, t} = \frac{P_{Nominal, t}}{CPI_t}$$ where CPI is consumer price index. And I know that the ...
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73 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 ...
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54 views

Shouldn't corporate tax be calculated based on EBIT instead of EBT?

When I was studying Corporate Finance in university, I was surprised to learn that it is more advantageous for corporations to take more debt (even if they don't need to) because it creates tax shield ...
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42 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 ...
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77 views

How can anyone possibly predict how the price of anything (stocks, Bitcoin, fiat, etc.) will change without “insider knowledge”? [closed]

Other than the fact that all centralized (and thus "quick") exchanges require KYC/AML nonsense, making it impossible for me to have an account there, I've never dared to even try once to &...
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1answer
39 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 ...
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136 views

Can banks 'create' money on their own or do they need help from other banks?

My current understanding of the banking money multiplication process goes as follows: Alice comes along and deposits 100 cash into Bank A. Bank A gains 100 in vault cash (reserves) as an asset and 100 ...
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45 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 ...
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45 views

Is “normal distribution” a good choice for modeling future inflation rates?

I have a financial model that generates future values for a present sum of money based on its growth by investment minus inflation adjusted expenditure. Rather than use fixed rates for growth and ...
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17 views

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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23 views

overnight index swaps OIS

I'm writing a paper where I am using expected federal funds rates at different horizons and wanted to use the OIS as a proxy for what the market expects the FFR to be post FOMC-meetings. However, I ...
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29 views

Slope vs elasticity of demand function - Is it the same thing?

Do the slope of a linear demand function and the elastisicy of demand coincide when we use specific preferences for pricing. As a paradigm, if we consider the case of CARA normal preferences, by ...
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30 views

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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3answers
46 views

How do you differentiate between a business expense and an investment for the purpose of profit reporting?

As I understand it, in a company, profit will be invested, either into capital assets or into projects. How do you distinguish between an expense, and reinvesting profits back into company projects? ...
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60 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. ...
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1answer
57 views

Difference between yield curve and term structure of interest rate

Can somebody please explain me the difference between yield curve and term structure of interest rate? Thanks
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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. ...
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97 views

HARA preferences details

I am searching for some exntensive details about HARA preferences. Where could I find some extensive details for HARA preferences? Something like a textbook or notes
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33 views

Nash in demand functions!

I am searching for some types of games that are played in linear demand functions. Altough I hear that there is a vast literatrure for games that are played in the intercept or the slope of the demand ...
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39 views

What are the pros and cons of a “long stock, short call” position compared to a “short put”?

The profit-loss diagram for the "long stock, short call" position and the "short put" position are almost exactly the same, except that for the former, you may be able to profit ...
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263 views

Has anybody seen anything this expression before?

Suppose that $z(\cdot)$ is the demand function of an individual (consumer/investor) and $p$ is the price of the commodity/asset demanded. Does anybody know what is the intuition behind the following ...
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40 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 ...
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1answer
51 views

Why is basis point defined as “1/100 of a percent”?

Shouldn't it be defined as "1/100 of a percentage point"? If you take "1/100 of a percent" verbatim, it could mean the following : If 1% increases to 1.01%, that is a 1% increase, ...
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34 views

What are some interesting papers using Machine Learning in economics/finance?

I'm about to write my Master's thesis, and I'm really interested in Machine Learning. Do you know any interesting applications of Machine Learning in economics? And preferably, in Finance? Doing my ...
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25 views

Resources to learn about banking and financial services industry [closed]

Can you recommend resources to learn about how the banks and modern financial system work?
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34 views

Where to learn financial modelling concepts and skills?

I'm looking to learn more about the financial analysis of a business. Things like unit economics calculation, income statement, free cash flow analysis, a valuation calculation, etc. Can you recommend ...
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38 views

How can I represent this observation regarding options in a formula?

By observing how an option's expiration P/L changes as its underlying asset price changes, we can discover the following system of equations: $\begin{cases}S_{Long} = C_{Long} + P_{Short} \\ S_{Short} ...
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49 views

What's the economic argument (if any) for taxing dividends as ordinary income?

My (limited) understanding is that dividends and share repurchases are economically very similar: while share repurchases are slightly less direct, both transactions are effectively ways for publicly ...
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69 views

Policy ineffectiveness proposition

Suppose, the Aggregate supply is given by the Lucas Supply Curve - $y_t = ȳ + b(P_t - E_{t-1}P_t) + μ_t$ where $μ_t$ is stochastic supply shock (following standard normal error properties). Aggregate ...
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Are there historical cases of country A printing the currency of country B for the main purpose of economic warfare?

I recently read in a news article that a large amount of Libyan banknotes printed in Russia were seized in Malta following an order coming from the USA. Both Russia and the USA have geostrategic ...
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158 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 ...
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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 (...
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Correcting high AR(1) coefficients in dynamic Gordon model

I have just finished my thesis on a heterogeneous dividend expectations model applied to the COVID-19 crisis. However after receiving some feedback there is one last issue I want to resolve. I'm using ...
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60 views

Is it easier to profit from selling, than buying, options?

Reasons 1-3 and 4-6 below look correct. Is the author's conclusion correct though? To make a profit on the buying side: You have to be directionally correct. The price must go up for calls, down for ...

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