# 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 ...
• 17k

### 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 ...
• 6,658
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\...
• 9,421
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 ...
• 836

### 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*} \...
• 9,421
Accepted

### 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 ...
• 6,990
Accepted

### 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 ...
• 2,619
Accepted

### 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 ...
• 57.7k

### 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 ...
• 3,768

### 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 ...
• 1,914

### 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 ...
• 1,924
Accepted

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

Let $w$ denote the weight on $A$ so that $1-w$ is the weight on $B$. Recall from the properties of variance that $\sigma_p^2 = w^2\sigma_A^2 + 2w(1-w)\sigma_A\sigma_B \rho_{AB}+ (1-w)^2\sigma_B^2$ ...
• 836
Accepted

### Who invented these key notions in Finance?

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 ...
• 57.7k
Accepted

### Properties of Financial Markets in Real Life

Equilibria: in the macroeconomic sense of aggregate equilibrium where all markets clear, markets are most likely never in any equilibrium but rather in constant flux between different equilibria, ...
• 57.7k
Accepted

### Elasticity of demand functions

In the case of linear demand $d_i=a_i-x_iP$ (assuming $d_i$ is quantity demanded by individual $i$), the price elasticity of demand at point $(d_i,P)$ is \epsilon_i(d_i,P)=x_i\cdot \...
• 15.8k
Accepted

### Unresolved paradoxes or puzzles in financial economics

Merger paradox from industrial organization: I believe a fairly good overview is here: Garcia, F, Paz y Miño, JM, Torrens, G. The merger paradox, collusion, and competition policy. J Public Econ ...
• 3,477

### Most notable papers in Economics in 2021

Despite the fact that I am tired of reading paper's on natural experiments, there is one contribution in this field that captured my attention. Not only the topic is fascinating (Switzerland offered ...
• 3,481
Accepted

• 29.6k
Accepted

### What accounts for the high GDP of the United States?

Looking at gross output (which includes using the outputs of other industries) and value-added (largely wages and profits) by industry you get numbers like this for 2017 in USD trillion. Adding up ...
• 4,765
Accepted

### Volatility and the stock market

There seems to me no relationship between the general direction of price movements and market volatility. Clearly the market disagrees with you. As the saying goes, "markets go up in an escalator ...
• 2,619
Accepted

### What would happen if we eliminated fractional reserve banking while expanding the money supply?

You are actually not the first person to wonder about this, there is a whole literature on this topic (although most of it is now out of date). What you describe is called “the Chicago Plan”. It was ...
• 57.7k

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

I think this may not always be true as stated You say "$U(y_s) = -\frac{1}{2}(\alpha - Y_s)^2$ for $Y_s < \alpha$" so presumably $U(y_s) = 0$ for $y_s \ge \alpha$ to avoid utilities decreasing as ...
• 4,765
Accepted

### A trillion dollar invention

A trillion dollars is nominal, there's no indication of when this invention is going to be worth a trillion dollars. Maybe in 100 years, this question would be worth a trillion dollars, but a Coke ...
• 46
First, to give a little more background to 123's answer, a production set $Y$ is the set of all feasible production values. With $y \in Y$, $y$ is a vector in $\mathbb{R}^L$, where positive elements ...