# Tag Info

### Financial economics vs finance

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, and this ...
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### Inflation effect on FX rates

Edit: adding some references (main body is untouched) Kenneth Rogoff and Richard Meese received an incredulous reaction to their now-famous paper showing that random-walk (RW) forecasts outperform ...
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### What data sources are available online?

Here's a snippet of a detailed list of data sources and tools which available on my blog at http://the-world-is.com/blog/resources/general-investor-resources/. Fundamental Financial Data ...
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### If markets are efficient, why are most returns systematically high?

What you describe is known as the Equity Premium Puzzle - and it really is, as the name says, a real enigma: "The equity premium puzzle (EPP) is a phenomenon that describes the anomalously higher ...
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### Can we think of Overnight Index Swaps as short-term IRS?

An Interest Rate Swap (IRS) normally refers a swap between a fixed rate and a floating rate. Floating rate being a single fixing for each accrual period and payment. An overnight indexed interest-rate ...
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### Can classical economics explain *any* of the so-called stylized facts of finance?

I would argue that indeed none of the so-called stylized facts you mentioned can be explained by classical economic theory. That there was a gross delta between the predictions of classical economic ...
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### What data sources are available online?

Our startup SimFin, provides both historical and actual data for free, since we couldn't afford the pricey premium solutions back when we were students and wanted to overcome the hegemony of the data ...
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### Could we have prevented the World Economic Crisis in 2008?

U.S. Government DID save American International Group (AIG) from bankruptcy, since it was considered too big to fail, actually: a lot of financial institutions were insured by AIG. This Investopedia ...
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### Why Central Bank carry out Qe when they can directly force banks to lower down the interest rate?

There is not a single 'interest-rate' to reduce, there are various interest rates in play. The central bank mandate is usually to control CPI or a similar measure of inflation (e.g. Bank of England's ...
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### Brexit implied probability

The general formula for conversion of "a to b" odds to a probability is $p=\frac{b}{a+b}$ http://www.calculatorsoup.com/calculators/games/odds.php So 8/15 remain implies remain with probability 0....
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### What is the relation between Relative Risk Aversion and Market Price of Risk

In most economic models the risk aversion coefficient is definitely related to the equity premium. Assuming utility is CRRA (as you mention): U(C_t) = \frac{C_t^{1-\gamma}}{1-\...
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### 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 is a ...
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### Can we think of Overnight Index Swaps as short-term IRS?

The concept is similar, but the mechanics are slightly different. Making a quarterly payment based on 3-month Libor is fine, but making daily payments of the overnight rate is inconvenient (too much ...
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### Can the money market break in a crisis situation?

Clearly the money markets are likely to freeze up in a crisis situation. They did exactly that in 2008. Specifically: A) people don't want to lend money unsecured to banks, so bank commercial paper ...
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### Why financial instistution for instance banks lowered down their interest rate during QE?

Put it simply, the interest rate depends on the forces of demand and supply of money. When the Fed buy bond, it increases the money supply into the economy. To induce the people to borrow more money ...
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### Is it possible that some types of financial systems can resonate?

The general effect of quantitative analysis of the markets is to enforce randomness. Suppose a strategic quant finds a predictable pattern where a stock always rises on Tuesdays. His institution will ...
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### Can classical economics explain *any* of the so-called stylized facts of finance?

I think there is a slight misconception into the purpose of an economic theory. The market is a complex entity to be modeled and yes, it is neither efficient nor arbitrage free but it is trading and ...
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### Can tobin's Q value for a firm be negative?

No, it is not possible for Tobin's Q to be negative in any normal situation. Mathematically it is true that if the 'short term assets' figure is very large (because of a data error or otherwise) the ...
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We know that: $$R_{t+1} = \frac{P_{t+1} + D_{t+1}}{P_t}$$ After some algebra and taking logs we can write the returns as: r_{t+1} = k + \rho (p_{t+1} - ...