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Economic Category:
Financial Economics
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3.
Asset-Backed Securities
Of the array of creative financing techniques that came of age in the eighties, one that emerged from that tumultuous decade with its reputation intact is asset securitization. This article explains these asset-backed securities. [Details...]
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4.
Bonds
Bond markets are important components of capital markets. This article discusses the different types of bonds: U.S. Government Bonds, Corporate Bonds, and Municipal Bonds. [Details...]
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5.
Corporate Debt
This article explains corporate debt by examining a paper written in 1958 by Franco Modigiliani and Merton Miller which contains a theory known as "the M&M theory." [Details...]
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6.
Corporations
Corporations are easy to create but hard to understand. Because corporations arose as an alternative to partnerships, they can best be understood by comparing these competing organizational structures.
[Details...]
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7.
Efficient Capital Markets
To an economist the difference between the market in the late 1700s and today is that today's market is more "efficient" at incorporating information into security prices. Efficient capital markets are commonly thought of as markets in which security prices fully reflect all relevant information that is available about the fundamental value of the securities. [Details...]
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8.
Fire Insurance in the United States
This article explains the rationale and development for fire insurance. It gives a table of the various companies within the different states and the year of formation. Graphs depict fire losses and other variables. [Details...]
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9.
Fraternal Sickness Insurance
This article explains the types of fraternal orders that existed in the late nineteenth and early twentietch centuries and the types of insurance they offered, explains how friendly societies worked to provide sickness insurance as a reasonable price by overcoming the adverse selection and moral hazard problems, while facing problems of risk diversification, and closes by examining historians' assessments of the importance and adequacy of fraternal sickness insurance. [Details...]
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10.
Futures and Options Markets
This article explains how futures contracts provide stability in an unstable business environment and how without a futures market it would be difficult to know whether a price offered or demanded for emissions allowances is high or low. [Details...]
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11.
Insider Trading
This article cites the basic arguments against insider trading with reference to well known cases and public policies. [Details...]
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12.
Interest
Interest is the price people pay to have resources now rather than later. This article gives an example of how it might be used in order to demonsrate the formula for calculating interest. [Details...]
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13.
Junk Bonds
This article explains how junk bonds are debt instruments that are issued by corporate borrowers and which the major bond-rating agencies say are less than "investment grade." [Details...]
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14.
Life Insurance in the United States through World War I
This article examines the beginnings of life insurance policies with Presbyterian Synods in Philadelphia and the Corporation for Relief or Poor and Distressed Widows in New York. It also examines mutuality, the civil war, the Armstrong Committee Investigation, and continued growth in the early twentieth century. [Details...]
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15.
Monetary Unions
This article defines monetary unions, discusses its advantages and disadvantages, explains its history in the nineteenth century, and gives examples of success stories. [Details...]
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18.
Pensions
This article describes the basic features of the U.S. Pension Plans, defined contribution plans, defined benefit plans, plan termination, and economic issues surrounding pensions. [Details...]
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19.
Present Value
Present value is the value today of an amount of money in the future. This article gives example to describe what this means. [Details...]
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20.
Program Trading
Program trading, the subject of considerable controversy in recent years, is the simultaneous trading of a portfolio of stocks, as opposed to buying or selling just one stock at a time. This article describes how program trading has developed, techniques to trading, and discusses the index arbitrage between the stock market and the futures and options market. [Details...]
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21.
Savings and Loan Industry (U.S.)
The savings and loan industry is the leading source of institutional finance for residential home mortgages in America. This article discusses the origins and the history thus far of this industry. [Details...]
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22.
Stock Prices
The price of a share of stock, like that of any other financial asset, equals the present value of the expected stream of future cash payments to the owner. This article explains the firms role in stock prices, returns, and discusses the major determinants of stock prices. [Details...]
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26.
Usury
The question of when and if money can be lent at interest for a guaranteed return is one of the oldest moral and economic problems in Western Civilization. This article describes how by the early modern period the concept of usury began to be secularized, but the issue of what usury is and when it occurs is still causing disputes in modern legal and theological systems.
[Details...]
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27.
Completing Markets: Options and Long-Lived Securities
Options are one of the more interesting securities to which arbitrage reasoning can be applied. (European) options, recall, are assets who derive their value from an underlying security, thus they have a return structure ro = [max(0, r1 - c), max(0, r2 - c), .., max(0, rS-c)] where r1, r2, .., rS are the returns on the underlying security and c is the "strike" price. The strike price is the asset price at which the owner of the option is entitled to buy (if a call option) or sell (if a put option) a unit of an underlying security if he decides to "exercise" it. One of the more interesting results, as stressed by Stephen Ross (1976), is that we can use options to "complete" incomplete markets: specifically, we can construct options to span a space when there are an insufficient number of fundamental assets. [Details...]
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29.
Iowa Electronic Markets
The Iowa Electronic Markets are real-money futures markets in which contract payoffs depend on economic and political events such as elections. These markets are operated by faculty at the University of Iowa Tippie College of Business as part of our research and teaching mission. [Details...]
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30.
ID-PS1-DA
This is a configuration file for a double auction asset market experiment. There are three states that determine
dividends for two trader types. There is no private
information in this market, so the prices and allocations
can be compared to the private information equilibrium. [Details...]
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31.
ID-SSW-DA
This is a configuration file for a double auction asset market experiment. This is known as the "asset bubble"
experiment, because there is typically a run up in the
asset price above its fundamental value in the middle of
the experiment, with the run up in price followed by a
crash in the asset price. [Details...]
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32.
Perceptions of Chance and the Efficient Market Hypothesis: A Classroom Experiment
The efficient market hypothesis is one of the most difficult concepts to teach undergraduate students. This difficulty arises from the false knowledge which students bring to the classroom. Many students are born chartists, like many members of the financial community, certain that predictable patterns exist in stock price data. Most likely these beliefs are due to an inability to distinguish correlated data from uncorrelated data, as observed in psychological studies of the hot hand fallacy and the gambler's fallacy. The classroom experiment described in this article is designed to illustrate students' misperceptions of chance. Students are asked to pick one of five sequences as being uncorrelated over time. The experiment is presented in terms of true/false exams, a natural context for students. Results are consistent with the psychological literature; the modal response is a sequence with slight negative autocorrelation. Follow-up questions and discussions are also described. These are designed to make connections between the experiment, the psychological literatures on perceptions of random sequences, and the efficient market hypothesis. [Details...]
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