11 votes
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Are stock exchanges market makers?

No, they are not market makers. A market maker is someone who (i) quotes two prices (one 'low' and one 'high'), (ii) will buy from any seller at the low quoted price (even if there is no ...
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8 votes
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Are cryptocurrencies a ponzi scheme or a bubble?

In general, "Ponzi schemes" in the context of asset pricing refer to "rational bubbles", or a failure of the transversality condition you need when passing from a flow identity to a present value ...
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  • 671
6 votes
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Who were the economists who made lots of money in the financial markets?

At university classes, I always learned that the only economist who ever became rich was Ricardo. However, Ricardo was already rich before becoming an economist. This article seems support this ...
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  • 419
6 votes

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 ...
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  • 2,700
6 votes
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What is the mix of maturities of outstanding US Treasury bonds called?

Weighted Average Maturity of Marketable Debt
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6 votes

What possible reasons could make arbitrage impossible between some markets?

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 ...
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6 votes
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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 ...
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  • 1,218
5 votes

Why is gold a safe haven investment?

You could see it as a coordination game and an example of a rational bubble. Because everybody knows that people start buying gold and the price goes up when the economy tanks, it is actually a good ...
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  • 961
5 votes

What is the need for a special purpose entity/vehicle in mortgage backed securities

Here are a few reasons that build on @Dismalscience's answer. Capital requirements: Banks don't typically need to hold capital against loans they originated but subsequently moved into an SPV. This ...
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5 votes
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Hedging with volatility swaps?

What are volatility swaps? Before the introduction of what is now volatility swaps, investors gained exposure to the market's volatility (yes, they already wanted to) through call and put options, ...
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  • 1,246
5 votes

Why is the Chilean economy so much better than the rest of the countries in South America?

This is honestly a pretty complicated question - it's very difficult to pinpoint any exact factors that have led to Chile being so successful relative to its Latin American counterparts. I'm not ...
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5 votes
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Why does falling global bond yields signal coming deflation?

Bond yields falling from their current near-zero position will place them in negative yield territory. Negative bond yields are deflationary by definition. Paragraph 3, sentence 5 of the article says: ...
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5 votes
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Competitive vs complete and non-competitive vs incomplete marekts

Complete market is a market where every possible asset or good can be assigned a price and where you have perfect information, can make perfect contracts and zero transaction costs. Any market can be ...
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4 votes

Who were the economists who made lots of money in the financial markets?

I will post the obligatory Efficient Market Hypothesis answer. This does not directly answer the question, but addresses the aparent misconception that there is some secret economist knowledge that ...
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4 votes
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Market Value of a publicly traded company

One possibility would be to use Wolfram Alpha. If I type the search phrase market capitalization msft 3rd December 2010 then the search engine returns the ...
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4 votes

What is the need for a special purpose entity/vehicle in mortgage backed securities

SPVs are typically used in MBS issuance to get the loans off the issuing bank's balance sheet, freeing up that balance sheet space to make more loans and providing bankruptcy-remoteness (i.e., the SPV ...
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4 votes
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Free Data Source for Credit Spreads?

Yes, there's daily data available on the St. Louis Fed's FRED.
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4 votes
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How does the GDP multiplier work?

The multiplier comes from the solution to the goods market equilibrium. In economics everything is endogenous. Increase in income increases consumption that increases demand, demand increases ...
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4 votes
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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 ...
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  • 2,559
3 votes

'No arbitrage' vs 'Efficient market'

NA, in my opinion, is the lack of a trading strategy to generate excess returns, that means returns greater than those of assets in the same risk category. Note that it doesn't mean no risk. A market ...
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3 votes
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Fannie Mae and Freddie Mac as substitute benchmark bonds

Fannie Mae and Freddie Mac bonds have long been viewed as having an implicit government guarantee, and though they received government support during the crisis, they never missed a payment to ...
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3 votes
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Conforming mortgage loan limits by county and year

The high-cost area conforming loan limits within the contiguous United States were created by HERA (the Housing and Economic Recovery Act of 2008) and therefore do not exist prior to 2008. For periods ...
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3 votes

Who were the economists who made lots of money in the financial markets?

Myron Scholes and Robert C. Merton were 2 economists who co-founded Long-Term Capital Management fund. They made a lot of money initially both for themselves and investors by using trading strategies ...
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3 votes
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Securities Prices in Financial Markets

The total wealth (as is pointed out in the book) is given as : $$ X(1)=\delta_{0}B(1)+\delta_{1}S_{1}(1)+...\delta_{N}S_{N}(1) $$ The wealth at period one is just the sum of the securities (including ...
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3 votes
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Market Behavior under expected and unexpected news

Short answer: the market has a forecast of the government numbers but the market considers the actual government numbers to contain information not available to the market. Therefore when unemployment ...
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3 votes
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trading security volume that affects price

There are countless models, from different perspectives (theory/econometric/etc.) on price impact of trade volume. The seminal model in market microstructure---the Kyle model (85 Econometrica) ...
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  • 2,559
3 votes

Why is the term structure curve of agricultural commodities often downward sloping?

In Keynes's Treatise on Money he argued that the phenomenon you describe, known as "normal backwardation", is due to the fact that certain commodities producers hedge their price risk (importantly, ...
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3 votes

Why is gold a safe haven investment?

Gold is safe-haven investment for mainly two reasons: It is a scarce resource. This alone would not explain why other scarce resources aren't good stores of values. The second reason is: It has the ...
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  • 131
3 votes

Financial Economics Textbooks

ASSET PRICING THEORY: Cochrane, Asset Pricing is a good book in that it displays the way that hard-core asset pricers see the world. Huang and Litzenberger, Foundations for Financial Economics is ...
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  • 2,590
3 votes

Financial Smart Contract on Ethereum: can an Ether Futures contract be priced in Ether?

Futures and Options are all about exchanging something for something else. These kind of derivatives all involve exchanging different 'kinds' of goods so it doesn't make sense to have both sides ...
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