Introduction: The concept of short run and long run is a complex issue in economics. There are four main differences between short run and long run in macroeconomics, the first being that it is considered a passage of time. Secondly the idea that the short run is out of equilibrium and the long run is in equilibrium. As a result the short run has no impact on the long run as it is given, and therefore short run can only have an impact around long run adjustment. This view point is widely accepted in current macroeconomic literature.
The Distress Risk Puzzle in Turbulent Times - Default risk during the financial crises SANNA BATZ* ANDERS NORDSTRÖM** Bachelor Thesis Department of Finance, Stockholm School of Economics Tutor: Jungsuk Han, Assistant Professor June 1, 2011 ABSTRACT Studies on whether risk of default is systematic or not have led to the discovery of the distress risk puzzle. It is a rather new anomaly and its implications are that empirical evidence seems to indicate that higher default risk results in lower returns. The purpose of this thesis is to clarify whether default risk is systematic, using Altman’s Z-score as a proxy for default risk. We also investigate some of the possible explanations of the distress risk puzzle by applying empirical tests on the times surrounding the financial crisis. We first confirm the existence of the puzzle during a longer period; however our findings suggest that this relationship is spurious due to a leverage effect.
Discounted Payback Period (DPB), Net Present Value and Real Option Analysis (ROA) are identified and recommended as the best tools in practice and justification is supplied to support this point of view. For DPB, managers want to know the timeframe (in years) involved in breaking even on their investment. NPV is supported by financial theorist and used widely in practice. ROA is a newer form of CBT but can be used to support NPV when greater issues of uncertainty are in question. After CBT calculations have been completed, firms move onto their formal capital budgeting approval process.
The Quantitative Reasoning for Business course will help utilize forecasting methods that are used in operations. The course will also teach concepts of finance such as the break-even analysis. All courses are necessary in successfully applying the concepts learned to real business situations. The desired outcome of the course is to be able to think analytically and make sound business decisions. References Quantitative Reasoning for Business Overview, University of Phoenix
Reflection on Economic Forecast This paper will enlighten the reader about different resources used to gather historical economic data as well as economic forecast data and explain why each source is valuable and useful. Each agency mentioned will have a brief synopsis to explain the basic function of each organization and its contributing factor. This paper will also attempt to identify any quantitative or qualitative forecasting factors contained in the sources. Team B will discuss their feelings on this week’s objectives and their collective struggles and how they relate to the application in their field of work. The resources discussed by Team B will be the CBO (Congressional Budget Office), the Moody’s Investor Services, US Census Bureau and Consensus Economics.
Weber used the term rationalization to explain the “process by which nature, society, and individual action are increasingly mastered by orientation to planning, technical procedure and rational action” (Morrison, 218). In other words, rationalization is the notion of taking human behavior and introducing it to rational thinking (ie: applying sense and organization to chaos). It refers to two broad trends in historical development. The first trend is the trend of social and historical procedures to become more dependent on calculation and technical knowledge in hopes to gain control over the natural and social world. The term calculation is used to put into words the point at which economic values break through the sphere of social life.
It is important for market participants to know how the invisible hand functions so they can all benefit by understanding how self-interest regulates the markets supply and demand. 3. Use the demand curve graph found at the following link to answer the questions that follow. • How would point A be represented as an ordered (x,y) pair? Answer: 20, 24 (Quantity, Price) • What does this curve show?
18.104.22.168 The Portfolio Theory and the Capital Asset Pricing Theory (CAPM) One of the most celebrated theories in financial economics is the Capital Asset Pricing Model (CAPM), a single-index asset pricing equilibrium model developed separately by Sharpe (1964), Lintner (1965) and Mossin (1966). CAPM has been very influential as it is widely used as a benchmark to measure the value of financial assets and capital budgeting projects as well as to assess fund managers‟ performance. Prior to CAPM, financial assets were mainly evaluated on the basis of their individual return whilst performance of investment funds were assessed mainly through relative measures such as fund ranking techniques due to the unavailability of a specific market equilibrium
This is regarded as an economic model as it theoretically gives numerical values to emotions and feelings. SET also attempts to explain formation and break-up as Thibault & Kelly argue that stages of Sampling, Bargaining, Commitment and Institutionalisation are encountered. According to both theories covered in this essay maintenance is like a mathematical equation. Relationships will continue if comparisons with previous relationships (CL) are favourable and the available alternatives (CLAlt) are no better than the current relationship. Argyle (1988) methodologies involved in assessing SET are contrived: Research base predominantly founded on short-term snap-shot sampling rather than longitudinal (AO3) , doubts whether can be applied across cultures (Moghaddam 1998) Rusbult (1983) ‘honeymoon’ period at start not accounted for, but Comparison levels of alternatives (CLAlt) appears to predict whether relationship will maintain and even how committed to a relationship individuals are (Sprecher 2001 research support) Murstein
By using the results of the first regression, I construct the policy index by combining the coefficients of investment, trade openness and inflation. Moreover, I construct the economic environment index by using the first regression results of the governance indicators. In the previous studies of Gomanee, Girma and Morrisey (2002), Ekanayake and Chatrna (2010), and Morrisey (2002), they found that the effectiveness of aid depends on the macroeconomic policy of recipient countries. If one country does not implement the good fiscal policy, monetary policy, and trade policy, it will fail in aid effectiveness. When the recipient countries have good policy, they will use the aid for investing in new technology, capital, and education that can increase the productive capacity and labor productivity.