Questions tagged [economics]

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130 views

Tech companies valuation

Usually tech companies/stocks are valued using one of the two methods: DCF (discounted cash flows) method that is sensitive to interest rates raise (if rates up value down) EBITDA or revenues ...
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0answers
27 views

Swiss Central bank policy rate

I was wondering if the SNB as policy rate targets a specific level or sets a target range [upper bound, lower bound]. I look into this report from Credit Suisse and they mention the below on page 21. ...
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How to find State price vector given inflation rate, bond price, states of nature, and dividend

Suppose you have the following information on prices of some assets. The inflation rate is 2%. The one period zero-coupon bond with a face value of 100 is sold at a price of 96. There are two states ...
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4 views

How to adjust a cash transfer program's income requirements for inflation?

For a study, I would like to "estimate" the income requirements for a cash transfer program on 2018 based on information from 2015. This cash transfer program has two income lines that it ...
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0answers
45 views

Escape Dynamics in financial economics or time series

These slides describe escape dynamics to be a type of, or having some relation to, rare event(s). Black swan events in business cycles was also included under the definition of rare events. My guess ...
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1answer
108 views

Equilibrium in the Kyle (1985) model

In his 1985 paper, Kyle presents 3 versions of the same model: a single period model, a multiple period model and the continuous time limit of the multiple period model. When he formalizes the ...
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2answers
296 views

Cashflow Risk vs Discount Risk

Studying asset pricing, I often hear the terms cashflow risk and discount risk but I'm not sure what they mean? The Campbell/Shiller (1988) decomposition includes cashflows (future dividends) and ...
3
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2answers
275 views

Can we think of Overnight Index Swaps as short-term IRS?

OIS are a series of fixed-rate cashflows discounted at the overnight rate, swapped for overnight (floating) rate. IRS are similarly discounted fixed-rate cashflows, swapped on an IBOR-floating rate. ...
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1answer
68 views

Looking for a Book which can summaries last 20 years of economics [closed]

What I would like to read is how the economic spectrum have changed over the period ( Central banks policy decisions , QE 1/2/3 , ECB TLTRO, BOJ unlimited stimulus ). How the central bank dealt with ...
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28 views

Effect of lowering benchmark interest rates

On recent days, Yen appreciated 30 bps towards USD "after the Central Bank lowered its interest rates by 50 bps". Can someone explain me the economic rationale of the appreciation after a central bank ...
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2answers
96 views

Cash flows regression on macroeconomic data

I'm looking into a research project and am struggling to find any existing work on this or whether I'm asking the right question. My question is to test the relationship between macroeconomic ...
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1answer
80 views

Question about CAPM Betas - Causes of Beta Movement Query

CAPM betas are measures of systematic risks, which include things like the exchange rate, inflation, interest rates, etc. What I'm confused about is described below: E.g. suppose I'm looking at one ...
2
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0answers
118 views

How to conduct an event-study for a single index (i.e the DJIA) with multiple events

I am a postgraduate student writing my thesis. I am somewhat a novice in the field I have chosen to study, however this has undoubtedly broadened my horizons. I am attempting to evaluate the impact of ...
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2answers
87 views

How does the efficient market hypothesis fit with the rapid changes in prices?

The price of IBM changes from second to second, but there's no way that actual news about IBM is coming out that fast. The information available about IBM changes a lot more slowly than its share ...
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0answers
53 views

Measuring corporate size relative to world GDP

I'm working o a model where corporate revenue / world GDP is a dependent variable of some stuff (based on the model proposed in this paper: http://www.scielo.br/scielo.php?pid=S1807-76922009000200002&...
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1answer
189 views

Is there such a thing as resonance in economic underliers?

In physics the occurence of resonance is explained and widely understood in its linear form and subject to research in nonlinear resonance. Example for instance are resonant frequencies of objects. ...
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0answers
81 views

Autoregressive Distributed Lag Models (ARDL) results analysis

When using autoregressive distributed lag models (ARDL), I usually get a counter-intuitive result for the selected lag. For example, when examining the relationship between GDP and Foreign Direct ...
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1answer
79 views

What preprint repositories are available online?

Besides data sources, what preprint archives are available for academics and practitioners in the fields of Quantitative Finance and Economics? I have subscribed Google Scholar alerts and regularly ...
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3answers
279 views

If markets are efficient, why are most returns systematically high?

Suppose markets are perfectly efficient and asset prices reflect all available information. Under this assumption one expects current prices to be non-biased estimators of future prices. It seems to ...
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1answer
632 views

What is the relation between Relative Risk Aversion and Market Price of Risk

If we assume that the preferences of investors in a market aggregate to display the following utility function $$u(W)=\dfrac{1}{1-\gamma}W^{1-\gamma},\quad \gamma>0,\quad \gamma\neq1$$ then from$...
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1answer
263 views

Does CRRA-utility imply higher risk-aversion for lower wealth?

Consider the utility function $u(W)=\dfrac{1}{1-\gamma}W^{1-\gamma}$, where $\gamma=0.5$ Since this function will exhibit decreasing marginal utility of wealth, is it correct to say that for any ...
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0answers
86 views

How to Calculate the Value of a Growing Perpetuity Using a State Price Matrix?

Summary I wish to value perpetual cash flows through state contingent claims on real consumption, where the state of the economy is assumed to follow a finite markov chain (Similar to Banz and Miller ...
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0answers
256 views

Comparing two models using Wald Test

I would like to use a Wald test to compare two models. To give a basic example, let: $Y_{t}=\alpha+{\phi_1x}_{t-1}+{\beta}_{1}x_{t-1}+{\beta}_{2}x_{t-1}+{\beta}_{3}x_{t-1}+\epsilon_t (A)$ $Y_{t}=\...
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0answers
114 views

Elobaration on: Discrete returns versus log returns of assets

I read Discrete returns versus log returns of assets and it is very helpful. However, if log-returns are easier for time-aggregation, then why do economists work with discrete returns e.g. in GDP ...
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1answer
3k views

Financial economics vs finance [closed]

What is the difference between financial economics and finance?
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1answer
153 views

What relevance might the Modigliani-Miller theorem have for weight of evidence?

Suppose in computing weight of evidence based on financial ratios of some bank, one finds that their debt ratio and equity ratio have largely (you pick how large I guess) differing weights of evidence....
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1answer
190 views

When a particular bond is delivered, why there is the need to define a conversion factor? What is its utility?

Where, the conversion factor for a bond (by John C. Hull) is set equal to the quoted price the bond would have per dollar of principal on the first day of the delivery month on the assumption that the ...
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1answer
75 views

Valuation functional

Consider an economy with $J = 2$ assets and $S = 3$ states. The $J\times S$ payoff matrix for the two assets is $$X = \begin{pmatrix} 0 & 3 & 3\\ 1 & 1 & 0\\ \end{pmatrix}$$ and the ...
2
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1answer
1k views

Can tobin's Q value for a firm be negative?

Can Tobin's Q value for a firm be negative? I am calculating Tobin's Q value using Compustat data for firm i and year t. I am using the formula presented in Chung and Pruitt(1994) - Q = (Market ...
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2answers
141 views

How do I interpret the credit rating history time series?

This is the best historical time series which I could find from tradingeconomics.com/malaysia/rating. It would be great if someone could answer my question. I am currently researching on the topic of ...
1
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0answers
43 views

Simulating Asset Prices by Independently Simulating Supply and Demand

If I have an asset, whose supply is generally mean-reverting and whose demand is generally cyclical, could I somehow simulate / project the supply and demand levels across multiple discrete time ...
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2answers
60 views

Central Bank intervention in forex market

Sometimes CB intervenes in fx market buy buying or selling currency to make it stay in some band. My question is how does Central Bank determine the size of interventions? I mean how do they know how ...
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1answer
2k views

In what economic scenario do yield curves bull flatten or bear steepen?

Bull steepening and bear flattening have the common belief that in bad news, treasuries catch a bid and short end rallies more because most bad news are short lived. In good news, treasuries sell off ...
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2answers
382 views

Brexit implied probability

It is possible to bet on the Brexit e.g. on this page: https://sports.ladbrokes.com/en-gb/betting/politics/british/eu-referendum/uk-european-referendum/220800266/ The quotes are 8/15 for remain, and ...
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4answers
706 views

Could we have prevented the World Economic Crisis in 2008?

There is an expression - "Too big to fall." - which means that if a bank or a financial institution manages a sufficient part of the financial assets than the state can't afford that this bank or ...
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1answer
55 views

How were the probabilities of recession over the next four quarters calculated in this table?

http://www.bloomberg.com/news/articles/2016-02-08/goldman-sachs-says-defy-mr-market-as-recession-risk-still-low The probability of a slump in the U.S. is just 18 percent and 23 percent over the ...
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1answer
260 views

Which studies should be replicated?

In psychology voting on which studies should be replicated is established on a website. For economics, including financial economics, the ReplicationWiki (that I founded) offers a voting option but it ...
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1answer
61 views

Fannie Mae and Freddie Mac as substitute benchmark bonds

"The reduction seen in US government debt in the late 1990s has led to a redution in the supply of intermediate and long-term government bonds, and some concern has arisen over this fact. In the ...
2
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1answer
73 views

Why financial instistution for instance banks lowered down their interest rate during QE?

When QE is carried out, the Federal Reserve prints money and buy government bonds in an effort to pour extra money into the economy. This causes financial institutions for instance banks to lowered ...
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3answers
202 views

Why Central Bank carry out Qe when they can directly force banks to lower down the interest rate?

To boost the economy, the central bank can do it either by lowering down the interest rate nor carry out QE. But QE objective is to lowered the interest rate also so banks can give out more loan. This ...
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2answers
72 views

Can the money market break in a crisis situation?

I am researching the question, what happens during a crisis situation to the money market. Can it break? In 2007-08 there is evidence that liquity hoarding from banks became a rather common problem. ...
1
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1answer
58 views

Stressing the going up of LIBOR - Which balance sheet variables to stress?

Analysts expect the LIBOR to rise in the next two years. Hence, all companies that have foreign currency loans will face problems. I am preparing a study on this topic, but data is an extreme issue. ...
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2answers
214 views

does there need to be risk-neutral agents in the market to enforce risk-neutral pricing?

I'm trying to understand a fundamental link between mathematical finance and economics. I understand that risk-neutral pricing is free of arbitrage with replicating portfolio. Does risk-neutral ...
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1answer
581 views

Looking for a definition of financial entropy

In Science, Entropy is generally considered to be the irreversibility of stuff. Google defines entropy as: lack of order or predictability; gradual decline into disorder The 'gradual decline in ...
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1answer
86 views

What is the gross accounting relation of Cobb-Douglas function?

We have Cobb-Douglas function like this $Y=AK^\alpha L^{1-\alpha}$, in one of the book, it deduce like this: How can we get this formula? $$\frac{\Delta Y}Y = \frac{\Delta A}A+\alpha\frac{\Delta K}K+(...
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2answers
274 views

Has automated trading produced profits at IEX?

Is there evidence that automated trading is profitable on the latency-enforced portion of the exchange? On the one hand, if automated trading was profitable when these limits existed naturally, it ...
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1answer
343 views

Cash flow diagram, interest rate inflow series

I have a econ midterm coming up soon and stumbled upon this question. My approach is: 2C=800/(1.12^2)+1200/(1.12^6)=125.71 or C=1245.71/2=622.85 But I have a gut feeling this is wrong. I believe the ...
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1answer
71 views

Is it possible that some types of financial systems can resonate?

Financial systems can certainly be modeled using the same tools physicists use to model dynamic physical systems. The validity of such is evidenced by models such as that developed by Black and ...
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5answers
439 views

Can classical economics explain *any* of the so-called stylized facts of finance?

I am doing some reading on the (historical) emergence of the Black-Scholes implied volatility smile for index options (yes - post 87), and I stumbled across an economic paper attempting to explain the ...
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3answers
506 views

Validity of CAPM

I came across some literature regarding "Framing Theory" or "Prospect Theory", and the validity of CAPM. I was wondering if you could shed some light on a few questions I have in this regard: ...