Questions tagged [economics]

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27 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
61 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
57 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 ...
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52 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
77 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
136 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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78 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
65 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
268 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
437 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
236 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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79 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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136 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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98 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
1k views

Financial economics vs finance [closed]

What is the difference between financial economics and finance? How does affect career options as well as academic opportunities?
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1answer
83 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
173 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
68 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 ...
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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
132 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 ...
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0answers
41 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
58 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
378 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
700 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
54 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
228 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
60 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 ...
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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
198 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
71 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. ...
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1answer
56 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
193 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
528 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
73 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
244 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
325 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
67 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
428 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
478 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: ...
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2answers
114 views

How to calculate burnrate?

Wikipedia says Burn rate is a synonymous term for negative cash flow but I neither agree nor believe that is formalized. A company could need turnaround from losses ...
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0answers
168 views

Understanding Price Elasticities in Discrete Choice Models (Derivative)

I'am in the midst of a paper on mutual fund product differentiation by Li and Qiu. Here, the authors model the utility an investor derives from investing in a mutual fund using a Discrete Choice Model ...
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1answer
159 views

How does trade deficit affect the economy of a country

How does trade deficit for a prolonged period(say 10-15 years) affect a country's economy? I have read that it should affect it adversely, but the US trade deficit has been negative since the mid 1960'...
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3answers
272 views

Is an economy where money yields interest able to be sustainable and healthy? If yes, how?

There are two points that concern me Loans If someone takes a loan of let's say 1000\$, he has to pay back the money with 5% interest, i. e. 1050\$. But where do the 50\$ come from? They didn't ...
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66 views

Questions related to the banking crisis during the European sovereign debt crisis

I am studying the European Sovereign Debt crisis and I have the following questions which I am struggling to find examples for: 1) I have heard that during the sovereign debt crisis, European ...
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5answers
219 views

economic facts that causes the financial time series to be heavy tailed

When reading a tutorail on extreme value theory, I once meet the following claim ...
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2answers
157 views

Why is that maximizing stock value, under uncertainty, is a better option than maximizing profits?

I've been trying to access the papers that state that kind of problem, but most of them need payment for access and I am on a student budget. I know that maximizing profits=maximizing stock value in ...
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0answers
32 views

Stability of Equilibrium in 2 good exchange economy

Hello I was wondering if someone could help me with the following question relating to the stability of an equilibrium in a two good exchange economy and the Walrasian auctioneer. The setting is the ...
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1answer
510 views

What are the good book to understand economics? [closed]

I am currently studying managerial economics by W. Bruce Allen. The book is good. Are there any good book with quizzes , that makes economics sweeter? Books that relate to real world facts and figure ...