23 votes
Accepted

Why is a stock market crash so bad?

Why FED/ECB/whatever raising interest rates is bad for stock markets? (I am aware that this is an assumption - my information could be wrong) This is because interest rates critically determine price ...
user avatar
  • 41.5k
22 votes

Are financial markets "unique" for each "currency pair", or are they simply "translated"?

It's not clear what level of answer you're looking for, so here is a much more basic answer. There are indeed many exchanges with many different prices. However, if you have noticed that you could ...
user avatar
18 votes

Why is a stock market crash so bad?

The previous answer is amazing from economist technical viewpoint, but misses two important points of why a stock market crash is bad: "Stock market" is an abstraction. There is no "...
user avatar
  • 678
14 votes
Accepted

Does the Federal Reserve buy and sell stocks?

No, the Fed is not allowed to buy stocks, they are allowed to buy government securities in open market operations in order to achieve the target rate for the federal funds rate. The guidelines for ...
user avatar
  • 316
14 votes

Does the Federal Reserve buy and sell stocks?

@capm is correct that the Fed is not allowed to buy equities (though they may lend against them if need be, so long as they are secured to their satisfaction— see, for example, all the things they ...
user avatar
13 votes

When a stock market crashes, how does money just disappear?

Stocks are not money. The valuation of a company - the market captialisation - is the number of shares multiplied by the share price. The share price is the price people are willing to trade at ...
user avatar
  • 918
11 votes
Accepted

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 ...
user avatar
  • 16.6k
10 votes
Accepted

Does the US stock market tend to rise after natural disasters?

This news article with some statements from financial workers makes a case that usually big storms don't impact the national economy that much, even despite the large localized damages. While ...
user avatar
  • 6,409
9 votes

Does the US stock market tend to rise after natural disasters?

There is some research on this area. Overall, the effect of natural disasters on stock markets depend on type of disaster, industry, and country. For example, this paper studies 30 natural disasters, ...
user avatar
  • 8,437
8 votes

Does my research prove market inefficiency?

The efficient market hypothesis does not imply that there are no patterns! As Eugene Fama pointed out decades ago, any test of market efficiency is a joint test of market efficiency and an asset ...
user avatar
8 votes
Accepted

Can the stock market grow faster than GDP indefinitely?

There are trends that has allowed stock markets in advanced economies to grow faster than GDP for a long time: Branching out abroad. This gives access to faster growing markets in developing ...
user avatar
8 votes
Accepted

What does a stock market index stand for?

Indexes don't have units. They're indexes. An index is a ratio of two numbers. The two numbers have the same dimension. So their ratio is unit-less. The compilers of each stock market index set a ...
user avatar
  • 7,992
8 votes

Does stock picking work?

In general, stock picking does not work. For more information, see this keynote address by Daniel Kahneman, who found that stock-pickers perform worse than chance when they change stocks: https://...
user avatar
8 votes
Accepted

What is the mechanism that triggers a stock price change?

I won’t discuss the fundamental reasons why stock prices change (discussed in another answer), but the mechanics (roughly) work like this. (Real world is more complex, since there are multiple ...
user avatar
8 votes

Are financial markets "unique" for each "currency pair", or are they simply "translated"?

Economic analysis always requires making some assumptions at some point. The assumptions that you make should try to fit reality the best that they can. Regarding your specific situation, there is a ...
user avatar
  • 9,107
7 votes
Accepted

Why do stock exchanges not operate at a fixed frequency?

As long as trading faster is not explicitly forbidden, there will be people who want to trade faster if they can take advantage of it. If you are able to trade fast enough, you can take advantage of ...
user avatar
7 votes

Is belief in future dividends the only long term value of stock?

Disclaimer: There are a lot of interesting aspects to this question. Shareholder voting rights, control over the company, etc. are all interesting things to consider. Here, I only focus on a few parts ...
user avatar
  • 9,107
7 votes

Aside from buying IPOs, what exactly is the point of shareholders?

The shareholder system is a way of distributing the ownership of the company - each shareholder owns a certain part of the company. Shareholders are the owners of the company, in several company legal ...
user avatar
  • 2,155
7 votes
Accepted

How to convert daily returns to annual returns?

So, let me start with your second question. No you cannot multiply by 365. You could approximate it by $$\log(\text{Annual Return})=365*\log(\text{Daily Return}),$$ but for what you are doing, it ...
user avatar
  • 1,901
7 votes

How can the stock market keep growing indefinitely?

As mentioned in the other answer, the amount of money does not have to correspond to the total value of all assets in the economy. However, there is some correspondence that is not mentioned in the ...
user avatar
  • 41.5k
6 votes
Accepted

What is the real reason for China's stock market crash in August 2015?

Stock prices predominantly are a quantification of the company's future growth and profit prospects. These are expectations, and are partly based on how the specific company performs currently and has ...
user avatar
6 votes

Why do falling oil prices take stocks with it?

First of all, the fall in prices does not only concern oil but most commodities — in particular raw materials such as iron ore, copper, nickel and many other — though it is indeed most noticeable for ...
user avatar
  • 1,067
6 votes

Why do people trade derivatives?

There are number of reasons to use derivatives. How practical the following are? It, in turn, depends on the costs compared to the importance (utility) of the case. The costs can be substantial. ...
user avatar
  • 266
6 votes
Accepted

How is the GDP growing when nothing else seems to be?

There's a bit to unpack here. Consistent wage growth seems in line with rising GDP. So does a steadily falling unemployment rate. For other economic measures, the stock market is a whole other ...
user avatar
  • 6,409
6 votes
Accepted

How time zones affects causality?

I'm skeptical that this will work. I'm concerned that for the sort of shock that is large enough to be interesting and large enough to study that stock prices will move before they open. You could ...
user avatar
  • 15.9k
6 votes

Does stock picking work?

This question probably needs the obligatory Efficient Market Hypothesis answer to complement the great answer by Angela Richardson. Broadly, speaking, the EMH reasoning goes like this: Suppose that ...
user avatar
  • 16.6k
6 votes

What is the mechanism that triggers a stock price change?

In stock market price is determined directly by supply and demand interacting in a way that is somewhat similar to haggling in traditional physical markets. Buyers will offer their bids for a stock (i....
user avatar
  • 41.5k
5 votes
Accepted

Why was Modigliani-Miller so relevant and innovative when it came out?

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 ...
user avatar
  • 15.9k

Only top scored, non community-wiki answers of a minimum length are eligible