# Tag Info

Accepted

### Why stochastic dominance is "stochastic"?

In the below figure, CDF $F(\cdot)$ is first-order stochastically dominated by $G(\cdot)$. But $X_1$ and $X_2$ fall within the support of both distributions. So it would be possible to draw $X_1$ from ...
• 16.6k

### An agent's expected utility depends only on mean and variance

In order to understand this problem, I will work through the generic case. Say that a user had generalized quadratic (Bernoulli) utility, similar to your problem: $$u(x) = \beta x^2 + \gamma x$$ and ...
• 6,409
Accepted

### An agent's expected utility depends only on mean and variance

\begin{eqnarray*} \displaystyle U(L) & = &\sum_{s=1}^{S}\pi_s U(Y_s) = \sum_{s=1}^{S} \left(-\frac{1}{2}\pi_s(\alpha - Y_s)^2\right) = -\frac{1}{2}\sum_{s=1}^{S} \left(\pi_s(\alpha^2 + Y_s^2-2\...
• 5,257
Accepted

### What is the equation $\mathbb{E}[mR]=1$?

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 ...
• 826

### Prove that variance of a portfolio cannot exceed variance of individual assets

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*} \...
• 5,257

### Unintended consequences from "fixing" the US financial system

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 ...
• 2,720
Accepted

### Financial Economics Textbooks

The recommended books are decent. From these two I'd go with Bailey first and if you're comfortable with that, then LeRoy & Werner. The latter requires some background in linear algebra and ...
• 1,218
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### Good Europe focused economics blogs

With a European view: The CEPR VOX EU: an economics blog created by the Centre for Economic Policy Research, which promotes research excellence and policy relevance in European economics. It covers a ...
• 6,652
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### Are no arbitrage models and equilibrium models equivalent?

...no-arbitrage models (such as Black-Scholes and HJM) are equivalent to equilibrium models (such as CAPM or C-CAPM). Short Answer Yes, for models where asset prices are assumed to be Ito ...
• 2,569
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### Is it common to see hedge funds go bankrupt?

Have any hedge funds gone bankrupt as a consequence of the "GameStop scandal"? This is very difficult, almost virtually impossible to say as events unfold. In order to understand why ...
• 43.5k

### Most notable papers in Economics in 2021

This is an opinion question, but I'll give my opinion. In terms of methods, I like Arkhangelsky et al.'s synthetic diff-in-diff. In terms of applied economics, I liked Goncalves and Mello's study of ...
• 2,547

### Most notable papers in Economics in 2021

I think the randomized trial of mask effectiveness is one of the most notable economic papers in 2021. This is not a pure economics paper and it is published in science that does not specialize in ...
• 1,425

### Most notable papers in Economics in 2021

Some papers that interested me this year (in game theory): Subgame-perfect equilibrium in games with almost perfect information: Dispensing with public randomization They show the seminal result of ...
• 1,829
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### Risk Premia in Continuous Time

The easiest way to model short-term but risky debt in continuous time is to have your $\psi$ be the increment of a compound Poisson process. Jumps in this process correspond to events that might or ...
• 3,712
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### Dealing with Missing Data when Testing the CAPM

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 ...
• 2,006
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• 3,712

### When a support function is found to be more profitable than the primary business

Microplane graters grew out of a company that was manufacturing dot-matrix printer parts, using a process that created extremely sharp metal bands— which was, at the time, more of a liability than a ...
• 6,255