# Tag Info

## Hot answers tagged financial-economics

6

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 consider the Greylock Capital Associates that filed for bankruptcy on 31 Jan. this year. It would be tempting to say that this bankruptcy occurred due to GME stock ...

6

...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 semimartingales (where the martingale part is a Brownian integral), although a more general argument is needed than that suggested by the special cases typically ...

5

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 $$\epsilon_i(d_i,P)=x_i\cdot \frac{P}{d_i}.$$ As @the_rainbox noted in their answer, price elasticity of demand varies along a linear demand curve. So in order to compare ...

3

Let $D_1 = 1$ be the event that the first loan defaults and let $D_2 = 1$ be the event that the second loan defaults. Assume that we know the correlation $\rho$ between $D_1$ and $D_2$ and we know the marginals $p_1$ and $p_2$. The aim is to compute the probability that one of the two loans defaults (for the junior tranche) and the probability that both ...

3

The equality in question follows from the expression for expectation of a log-normal distribution. For example, if $X \stackrel{d}{\sim} N(\mu, \sigma^2)$, then $$E[e^{a X}] = e^{a \mu + \frac12 a^2 \sigma^2}.$$ This is the reason that CARA/normal or CRRA/log-normal (agent utility/asset return distribution pair) set-ups reduce to the mean-variance case, up ...

3

This was most likely reference to the Fisher hypothesis. As argued by Engsted & Tanggaard (2002): classical economic theory, especially the Fisher hypothesis, according to which expected nominal asset returns move one-for-one with expected inflation such that expected real returns are independent of expected inflation. A related implication is that ...

2

Let $\pi$ be the fine that needs to be paid besides the parking fee (say, $\phi$) if he gets caught. Further, he may or may not get caught for not paying. So let $p$ be the probability perceived by John about whether he will be caught. Let $u(x)$ be utility function of paying for amount $x$, with $u(0)=0$, $u'(x)<0$. If he pays the parking fee $\phi$ he ...

2

Virtually same question was already addressed at quantitative finance stack by user Matthew Gunn. The answer there can be summed as: Financial economics is what economics calls finance. Finance is what finance calls finance. Less flippantly though, there's a long debate on whether finance is a subfield of economics, ... Prof. Milton Friedman famously ...

2

Your last expression is not correct because, as noted in the comments, you are after the unconditional variance, which is constant in these models. it should be $$\sigma^2=\frac{\omega+\phi\cdot E(x)}{1-\alpha-\beta}$$ PS: Also, you are missing a $t$-subscript in your penultimate expression. -- RESPONSE to comment Using more explicit notation, we assume that ...

2

I would say that we don't generally speaking assume that stock betas are constant. For example the paper Explanations for the Instability of Equity Beta: Risk-Free Rate Changes and Leverage Effects, from 1985 (!), cites at least six other earlier papers that the market risk of securities is not stable. Many papers use a rolling window CAPM estimation ...

2

The passage from Krugman is quite confusingly written. What Krugman has in mind is not increase in production per se but increase in aggregate demand which is associated with more production. The short run relationship between real output and price level (change in which gives you inflation) can be visualized on aggregate supply-aggregate demand (AS-AD) ...

2

Financial markets can look unimportant to layperson but empirical research shows that well functioning financial markets have direct impact on economic growth (have a look at Levine, 1997 and Levine 2005), which in turn benefits society greatly. For example, well functioning financial sector is crucial for economic development which helps to rise living ...

2

This seems to be specific to the CFA exam and is a badly formulated question. First, an indifference curve for some fixed utility level can be viewed as a function mapping $\sigma$ to $\mu$. At any value of $\sigma$, this function has a slope (which is given by $\sigma A$). No economist would call this a "slope coefficient" in this context, as this ...

2

It would seem that both options are correct given the specific mean-variance utility function. Use $\mu$ to denote the expected value. In the $(\sigma,\mu)$-plain, an indifference curve representing a particular utility level $\overline U$ is given by $$\overline U=\mu-\frac12 A\sigma^2.$$ Applying implicit differentiation, we can ...

1

I have found some posts to help answer your question. In a post on ResearchGate.net, https://www.researchgate.net/post/How-to-deal-with-missing-value-in-a-time-series-stock-market-data One of the responses that I think has the best answer for your is to carry forward the previous data . However, as the person stated, there is a problem with that method. ...

1

A good textbook for this sort of empirical research is Introductory Econometrics for Finance by Chris Brooks. That textbook helped me a lot when I was writing my thesis, which was actually on M&A (if they improve financial ratios for firms). I know writing a thesis is not exactly the same as actual research but reading your question I think you could ...

1

From short-run macroeconomic perspective buying gold is neither helpful nor unhelpful for an economy during recession. Buying gold as opposed to buying something else just creates shift in demands between the sectors but it does not change aggregate demand overall. At the same time buying gold instead of buying something else can change the relative prices ...

1

There's a bunch of things you could look at. Here's a couple: Foreign currency reserves. Does Switzerland have a lot of dollars on hand? If so, there's nothing to worry about, the peg will hold. Switzerland can just buy CHF using dollars, increasing the demand and therefore the price, until the price is back to normal. (CHF is the abbreviation for the Swiss ...

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