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 ...
  • 6,464
8 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 ...
  • 5,160
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 ...
  • 27.1k
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 ...
  • 5,415
4 votes
Accepted

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 ...
  • 27.1k
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 ...
  • 3,609
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....
  • 9,675
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-\...
  • 6,943
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 ...
  • 1,856
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 ...
  • 9,675
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 ...
  • 14.5k
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 ...
  • 2,198
3 votes
Accepted

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 ...
  • 3,609
3 votes

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 ...
  • 861
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 ...
  • 9,202
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} - ...
  • 6,943
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}...
  • 1,357
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 ...
  • 6,943
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

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

Classical economics cannot "explain" volatility smiles, but neither does it preclude their existence. Economics is far more abstract than financial "quant"modeling and answers very different ...
  • 1,339
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 ...
2 votes

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

No. Actually "risk neutral pricing" does not make assumptions on the risk preferences of the agents. Securities are priced as if agents were risk neutral (that is to say as a straight expectation of ...
  • 4,247
2 votes
Accepted

Looking for a definition of financial entropy

The concept of entropy in the financial field is related to the market efficiency and predictability one; the measure approximate entropy by Pincus (1991) is considered as a market efficiency measure ...
  • 2,446
2 votes

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

Take logs of both sides, i.e. $$\log Y=\log A+ a \log K +(1-a)\log L$$ This gives: $$\Delta\log Y = \Delta\log A + a \Delta\log K +(1-a) \Delta\log L$$ Then use that $\frac{d}{dx}\log x= 1/x$, which ...
  • 4,247

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