9
votes
Accepted
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 ...
- 8,143
8
votes
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 ...
- 6,924
7
votes
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
...
6
votes
Accepted
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 ...
- 27.3k
6
votes
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 ...
- 5,685
4
votes
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 ...
4
votes
Accepted
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 ...
- 575
4
votes
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 ...
- 3,669
4
votes
Accepted
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....
- 10.9k
4
votes
Accepted
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):
\begin{equation}
U(C_t) = \frac{C_t^{1-\gamma}}{1-\...
- 8,002
4
votes
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 ...
- 1,886
4
votes
Accepted
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 ...
- 10.9k
3
votes
Accepted
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 ...
- 9,332
3
votes
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 ...
- 16.5k
3
votes
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 ...
- 2,218
3
votes
If markets are efficient, why are most returns systematically high?
We know that:
\begin{equation}
R_{t+1} = \frac{P_{t+1} + D_{t+1}}{P_t}
\end{equation}
After some algebra and taking logs we can write the returns as:
\begin{equation}
r_{t+1} = k + \rho (p_{t+1} - ...
- 8,002
3
votes
Cashflow Risk vs Discount Risk
The cash flow news / discount rate news decomposition is given by
$$r_{t+1}-\mathbb{E}_t[r_{t+1}]=(\mathbb{E}_{t+1}-\mathbb{E}_t)\sum_{j=0}^{\infty}\rho^j\Delta d_{t+1+j}-(\mathbb{E}_{t+1}-\mathbb{E}...
- 1,692
3
votes
Accepted
Cashflow Risk vs Discount Risk
The answer to your question could fill an entire asset pricing text book. Your question mixes theory and empirics.
A different way of looking at it is to look at the identity:
$$ 1 = E[M_t R_t]$$
To ...
- 8,002
3
votes
Tech companies valuation
If we talk about tech stocks in general, a majority of their value is tied up in more distant cash flows / terminal value in a standard DCF analysis. So if interest rates go up, the more distant cash ...
- 31
2
votes
What data sources are available online?
CQG Inc.
https://www.cqgdatafactory.com/ - historical bar and time sales data (ticks)
https://develop.cqg.com/qd/?page=ContinuumDocumentation - api for getting realtime, historical data and trade ...
2
votes
What data sources are available online?
There is also a related question on the Economics site:
https://economics.stackexchange.com/questions/4679/what-are-some-good-repositories-for-economic-data
Answers from there: The American Economic ...
2
votes
What data sources are available online?
EDIT: Hi, I'm incredibly sorry. I'm archiving tendollardata.com and chartsonlygoup.com (link), as of April 1, 2021.
All data will only be up to December 31, 2020.
I feel compelled to be on a new ...
2
votes
Accepted
Stressing the going up of LIBOR - Which balance sheet variables to stress?
To evaluate the impact on your FX portfolio of an increase in LIBOR, or any other rate for that matter, you must know:
Which currencies you have exposure to
Which positions have a floating rate ...
- 1,549
2
votes
Accepted
Fannie Mae and Freddie Mac as substitute benchmark bonds
Since Freddie Mac and Fannie Mae are government sponsored enterprises (GSEs), the government guarantee was considered "implicit" before the financial crisis. As such, the credit quality of their ...
- 11.4k
2
votes
Accepted
What relevance might the Modigliani-Miller theorem have for weight of evidence?
I understand your question to be, "Does the Modigliani-Miller theorem have any relevance for forecasting the probability of default based upon debt to equity ratios?"
Not really.
The Modigliani-...
- 6,924
2
votes
Accepted
When a particular bond is delivered, why there is the need to define a conversion factor? What is its utility?
The purpose of conversion factor is to make bonds in the delivery basket more equally deliverable (theoretically anyways, but the process is not perfect).
This is an important design decision for ...
- 11.4k
2
votes
Accepted
Valuation functional
There was an error in my professors question he changed $$P = \begin{pmatrix}
2\\
5/9
\end{pmatrix}$$
Thus when we fix $q_2$ we get $$q = (5/9 - q_2,q_2,6/9 - q_2)$$ Thus for $q_2\in (0,5/9)$ all $q$'...
- 708
2
votes
Could we have prevented the World Economic Crisis in 2008?
Regarding how the rating agencies gave AAA ratings to CDOs and the like that clearly did not deserve those ratings - straightforward answer. The SEC licences all the ratings agencies as "nationally ...
- 464
2
votes
Central Bank intervention in forex market
They don't know how much intervention will be required to keep the currency at a given level. It depends how much other market participants want to resist the move. If the central bank is relatively ...
- 16.5k
2
votes
Central Bank intervention in forex market
They can simply place a (very large) limit order at the determined price level(s).
For example, when the SNB wanted to keep EUR/CHF above 1.20 they had a large buy order at 1.20 (i.e. they agreed to ...
- 5,891
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