Friday , March 29 2024
Home / Post-Keynesian / Financial Economics

Financial Economics

Summary:
This is a list of some of what I think one should know if one wants to talk to investors interested in theory. This post is not about making money and is probably not up-to-date. My references are fairly popular, and mostly old. I include one recent popular book as an example. Most of the references I do not recall very well, and I have not read Ben Graham. But many seem to know that Warren Buffet recommends this book. This post is non-critical. Keen and Quiggin in Debunking Economics and Zombie Economics, each have a chapter of criticism. Behavioral finance: The application of behavioral economics to finance. Beta: A parameter in the CAPM. Black Scholes formula: A formula for pricing options. Capital Asset Pricing Model (CAPM): A model that relates the risk of an asset to the market as

Topics:
Robert Vienneau considers the following as important:

This could be interesting, too:

Robert Vienneau writes Some Notes On Marx On Rent

Robert Vienneau writes Some Books About History Of Socialism And So On

Robert Vienneau writes CCC Does Not Depend On Reswitching

Robert Vienneau writes Translation Between The Language Of Classical Economists And Marginalists

This is a list of some of what I think one should know if one wants to talk to investors interested in theory. This post is not about making money and is probably not up-to-date. My references are fairly popular, and mostly old. I include one recent popular book as an example. Most of the references I do not recall very well, and I have not read Ben Graham. But many seem to know that Warren Buffet recommends this book. This post is non-critical. Keen and Quiggin in Debunking Economics and Zombie Economics, each have a chapter of criticism.

  • Behavioral finance: The application of behavioral economics to finance.
  • Beta: A parameter in the CAPM.
  • Black Scholes formula: A formula for pricing options.
  • Capital Asset Pricing Model (CAPM): A model that relates the risk of an asset to the market as a whole.
  • Efficient Market Hypothesis (EMH): A model in which all information is quickly built into asset prices. The EMH comes in at least three types.
  • Equity Premium Puzzle: The observed phenomena for stocks (or shares) to trade at higher prices, as compared to bonds, than can be justified by the EMH.
  • Lévy distribution: A family of probability distributions that, except for the limiting case of the Gaussian distribution, have an infinite variance. The Cauchy distribution is also a member. Benoit Mandelbrot recommends this as a model for changes in asset prices.
  • Martingale Theory: A branch of mathematics in which a stochastic process exhibits a special case of the Markov property. I recall learning about a drunkards walk and the gambler's ruin problem, but I do not recall this term in any of my formal math courses.
  • Modigliani and Miller (M and M): A model that implies, under idealizations, that it does not matter if corporations finance investments with equity or debt.
  • Noise trading: Trading on random variations in the price of an asset, instead of fundamentals. I know of this from some late 80s work of DeLong, Shleifer, Summers, and Waldmann.
  • Stochastic Calculus, also known as Ito Calculus: A branch of mathematics in which one can talk about the derivatives and integrals of a set of random variables indexed on continuous time. Such a stochastic process is different from a single realization).
  • Value-at-risk: A formula that applies to an investment portfolio.
  • Volatility skew: An anomaly, inconsistent with the Black-Scholes formula, that emerged in markets for options.

One also needs to know about puts, calls, indices, credit default swaps, types of spreads (e.g. a broken wing butterfly spread) and so on if one wants to be a financial analyst. As usual, this is an aspirational post. I do not claim to know all of this, and maybe I have gotten some of the above incorrect.

References

Leave a Reply

Your email address will not be published. Required fields are marked *