36
If you ask yourself how much a potential employer would have to pay you to convince you to work for him, the answer is probably something like "at least as much as I could earn by doing the same job for another employer". So, provided there are several employers competing to hire workers, you can think of employers as bidding against each other for the best ...
18
I suggest to learn more about the Economics of Superstars. Within the economics field, the "superstar" term is "...used to refer to extreme wage outliers (Adler, 1985; Rosen, 1981). These outliers are such that in a labor market there appears to be a convex relationship between wages and skills (Lucifora & Simmons, 2003). There are two main competing, ...
12
"Worth less" than before - yes, that's exactly what inflation does.
"Worthless" - not quite. No percentage-based reduction in value can make something worth 0, but there are extreme examples from history of times inflation has spiralled so far out of control ("hyperinflation"), money became worth less than the paper it was printed on, and life savings ...
8
According to this official link
Does the Federal Reserve ever get audited?
Yes, the Board of Governors, the 12 Federal Reserve Banks, and the
Federal Reserve System as a whole are all subject to several levels of
audit and review:
The Government Accountability Office (GAO) conducts numerous reviews of Federal Reserve activities.
The Board'...
8
Because Greece sets a precedent for Italy, Spain and Portugal (and others).
And a default of Italy (and Greece) might will cause financial difficulties in France.
If the interest rates for Italy and Portugal rise (they do now), then those countries are even more unlikely to repay their debt.
And meanwhile, somebody has to write them off.
Greece in ...
7
Let $P = \alpha A + (1-\alpha) B$ where $A$ and $B$ are returns (random) from the two assets, and $P$ is their portfolio.
Variance of portfolio $P$ can therefore be written as
\begin{eqnarray*} \sigma^2_P & = & \alpha^2 \sigma^2_A + (1-\alpha)^2 \sigma^2_B + 2\alpha (1-\alpha)\text{Cov}(A, B) \\ & \leq &\alpha^2 \sigma^2_A + (1-\alpha)^2 \...
6
1) Would lead to the return of general panic led bank runs, and introduce additional instability to the system.
It´s not generally appreciated, that 19th century bank runs were not just a symptom of insolvency or illiquidity, but were also occasionally triggered by competitors (other banks) spreading rumours. Generally this is a bad idea that rests on the ...
6
The seminal paper in this area with over 3,000 citations is by Shleifer and Vishney:
Textbook arbitrage in financial markets requires no capital and
entails no risk. In reality, almost all arbitrage requires capital,
and is typically risky. Moreover, professional arbitrage is conducted
by a relatively small number of highly specialized investors ...
6
Weighted Average Maturity of Marketable Debt
6
While whomever told you about "shadow banking" in China is correct that in an international context, the term can often refer to informal banking arrangements (the earliest use of the term); however, these days, it is usually used in the sense first coined by Paul McCulley in a speech he delivered ("Teton Reflections") at the 2007 Jackson ...
6
This is an important result in financial economics (asset pricing) but not trivial to explain intuitively. I do my best to give you the big picture and get you started on your research.
R is the return on an asset or portfolio. Any asset or portfolio.
m is the stochastic discount factor or pricing kernel.
The expectation here is over possible states ...
6
The question is quite complex and an answer should be far beyond looking only at the structure of the derivatives, but i try my best.
The initial situation:
Between 1998 and 2006, the price of the typical American house increased by 124%
Global saving glut due to the dotcom-bubble in the early 2000s, seeking institutions for alternative investments, ...
6
There's a fair amount to unpack in the question, so it might be useful to take it step by step, and consider everything from a more abstract, economic theory perspective.
...those who are more hardworking (or, at least, those who are more skilled) are essentially punished....
We should be careful making statements like this for a couple of reasons. First,...
5
The first equation can be written as:
$$ r_E(Levered) = \frac{E+D}{E}r_E(Unlevered) - \frac{D}{E}r_D $$
Then, isolating the unlevered return gives:
$$ r_E(Unlevered) = \frac{E}{E+D}r_E(Levered) + \frac{D}{E+D}r_D$$
And this is the WACC.
5
Easiest fix: if you're worried about it you should value weight your results. This is suggest by, for instance, Kothari, Shanken and Sloan (1995). Firms that are delisted tend to have extremely small market cap, so value weighting gives them very little impact on summary statistics. Delisted returns should also be used, although I'm not sure how much impact ...
5
ICAPM Factors
People have chosen different ways to pick factors. Chen, Roll and Ross are a classic example of attempts to find reasonable ICAPM factors. Fama-French factors are often explained as correlated with underlying ICAPM factors. Other researchers have chosen to look for factors without assuming outwardly observable exposures by analyzing returns ...
5
If I'm to give a single reference on learning six years of economics by yourself, it would be
MIT Economics Course
http://ocw.mit.edu/courses/economics/
The MIT has the best graduate economic program, and its undergrad program is definitely in the top 3. The faculty is technical-oriented, which means a lot of math, so you'll be well prepared.
The list of ...
5
People, particularly business leaders, seem to remain confused about this issue even today. At the core of is the question Is equity finance expensive?. We certainly observe in the data that the realized returns on firm debt are much lower than the realized returns on firm equity. Does this mean that firms have too much equity?
If equity capital always ...
5
People have argued that if $P \neq NP$ then efficient markets are impossible and certain equalibria may not exist. However, they may hold approximately, so I'm not sure if this qualifies. Additionally, if it turns out that $P=NP$ then certain economic optimization problems (e.g. in logistics) become easily solvable. On the other hand, if $P \neq NP$ then it ...
5
The other answers already give a good explanation about how actors are not easily replaced. But I'd like to highlight a flaw in the premise of your question: namely that you are cherry-picking data. You cannot consider the median wage of actors/actresses without considering the entire cohort. You are only looking at the winners, if it were possible (and ...
5
From the New York Fed:
Shadow banks intermediate credit through a wide range of securitization and secured funding
techniques such as asset-backed commercial paper (ABCP), asset-backed securities (ABS),
collateralized debt obligations (CDOs) and repurchase agreements (repos).
These sorts of things are issued through SIVs, structured investment ...
5
Let $w$ denote the weight on $A$ so that $1-w$ is the weight on $B$.
Recall from the properties of variance that
$\sigma_p^2 = w^2\sigma_A^2 + 2w(1-w)\sigma_A\sigma_B \rho_{AB}+ (1-w)^2\sigma_B^2$
Without loss of generality, assume $\sigma_A \geq \sigma_B$. We wish to show that
$w^2\sigma_A^2 + 2w(1-w)\sigma_A\sigma_B \rho_{AB}+ (1-w)^2\sigma_B^2\leq ...
5
People make decisions based on how the decision will change things. If I work an extra \$1000 worth of time, then I have to pay $\$1000 * \text{marginal tax rate}$ in taxes. The average rate is irrelevant to that calculation. It's a little more complicated than that in that the marginal tax rate may change over that \$1000.
The only time that the ...
5
Say you buy a house for \$100. This is paid with:
A \$10 down payment (from your own cash). (This is your equity.)
A \$90 loan from a bank at 10% annual interest. (We call this a mortgage loan or more simply a mortgage.)
Notice you're paying a relatively high interest rate of 10% on your mortgage, perhaps because the bank is not very confident that you'll ...
5
Examples where this happens are always extreme and contrived. I can think of two kinds of examples. The first is where you have an asset that for some reason has a price of zero or negative but a positive payoff in some states (perhaps no other asset pays off in that state). The second is where you have two assets with positive prices that have negative ...
5
Net Present Value (NPV) as a soft concept existed probably even in antiquity but it was formalized and made popular by Irving Fisher in his book the Rate of Interest.
Internal rate of return is basically a special application of NPV. It was also first formally introduced in Fisher's book although he called it 'rate of return over costs'.
Duration of bonds ...
4
Your question relates more broadly to modern portfolio theory, and can be illustrated via mean-variance analysis of a univariate time-series. The extension to the multi variate (normal) setting, is trivial. Below I use the term accuracy, in a non-formal way, relating to the variance of an estimator. In particular, when the variance of an estimator can be ...
4
If you are asking "Is the WACC the amount that the company expects to earn on the stocks and bonds that it holds.." then the answer is no.
The WACC, in very simple terms, is the amount of money a company pays to obtain financing for projects. These types of financing are clearly listed in the wikipedia article and clearly extend beyond stocks and bonds ...
4
Fundamental theorem of asset pricing tells us that if there is no arbitrage, there must exist a positive random variable $M$ (also called stochastic discount factor) such that for any return $R$, we must have $1 = E[M R]$. Thus to understand asset prices, in cross-section as well as across time, we need to understand which factors affect $M$.
Now, the most ...
4
A variance is an incomplete measure of risk in a sense, that it measures uncertainty in security payoffs, rather than uncertainty in holder's welfare. In the simplest way we can demonstrate this point as follows.
Suppose that agents want to marginally increase her holding of an asset by $\xi$ and a unit of asset provides a payoff of $x$, which is a random ...
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