We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Nobody downloaded yet

Different facets of the Macro Economy - Essay Example

Comments (0) Cite this document
Name: Instructor: Subject: Date: Different facets of the Macro Economy Question one Which one of the following are essential elements of models in which noise traders’ important effects on equilibrium assets prices despite the presence of rational arbitrageurs?…
Download full paper
Different facets of the Macro Economy
Read TextPreview

Extract of sample
Different facets of the Macro Economy

Download file to see previous pages... There was a development of model of trader risk that insinuated that decisions on investments are done with reference to market noise, and these decisions are not rational and hence unpredictable from the simple fact that they are affected by the sentiments of an investor. This makes the idiot traders a threat in markets of finance. Secondly, noise existence provides opportunists with information that enables them to exploit and take advantage of the situation in the market. These opportunists may engage in strategies of stealth trading where these investors extend their trade with time. Lastly, the irrationality by the noisy traders may lead to movement of assets’ prices from their basic values hence making the market to destabilize. Contrary to that, investors who are rational would act in a manner opposing a noisy trader hence stabilizes the market equilibrium. There is a prediction that institutional investors fail in encountering activities that are irrational by the noisy traders. The examination of the essential effects of the noisy traders on ADR market is as explained. ADR return falls or increases if the investors are not rationally pessimistic or optimistic. In the period of low noise, ADRs that are owned by high institutions exhibit autocorrelation that is same to ADRs being owned by low institutions. Nevertheless, in periods of high noise, ADRs that are owned by high institutions exhibit autocorrelation that is higher compared to the ones owned by low institutions. This creates an implication that there must have been an engagement in stealth trading by investors for exploitation of an irrational market. Via a regression of Granger causality, there is evidence of ADR portfolio returns with high institutions ownership which confirms that these traders make a reflection of the market information which is in the long run converted to securities. Finally, investors of an institution aid in the reduction of ADR returns of Europe. Though, for other continents ADRs, the stabilizing magnitude of positions of arbitrage that is taken by investors of an institution is not significant (De Long et al. 1990) Question two Consider a model with both noisy traders and rational arbitragers. Suppose there are no limits of arbitrage. Then arise in investment sentiments among the noisy traders: a) Shifts the asset demand curve of the noisy traders N b) May lead to increased short sales Y c) Has no effect on the equilibrium asset price N d) Affects the distribution of assets holding between the two groups of investors Y e) Affect the total gross supply of the assets in the market Y Discussion In case of existence of the noisy trader and an arbitrager in a market, given that there are no limits of arbitrage and a situation of arising of sentiments, a) there would not be shifts in the demand curve of the noisy traders. The explanation for this is straightforward because given an irrational trader who takes risk which give rise to investment sentiment; the prices of assets are mainly affected. In economics, the price of commodities affects demand in that the increase or decrease in prices leads to a movement of the curve and not a shift. Therefore, the statement of demand shifting is wrong as the main factor influencing demand of asset in this case is the price. b) The action may lead to increased short sales in that, in any case the noisy trader tries to sell the assets at prices that are lower than the market’ ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Different facets of the Macro Economy Essay Example | Topics and Well Written Essays - 2500 words”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1397873-different-facets-of-the-macro-economy
(Different Facets of the Macro Economy Essay Example | Topics and Well Written Essays - 2500 Words)
“Different Facets of the Macro Economy Essay Example | Topics and Well Written Essays - 2500 Words”, n.d. https://studentshare.org/macro-microeconomics/1397873-different-facets-of-the-macro-economy.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document
Solving 2 Macro-economy Questions
In the long run, this aggregate supply is fully responsive to the changes in price level. Gross Domestic Product (GDP) is the primary measure of the performance of the economy as it measures the annual output of goods and services or the aggregate output.
2 Pages(500 words)Essay
As a result of the positive demand shock at t=1, the AD curve shifts out to AD1. The SRAS curve remains the same. As a result the new short-run equilibrium point at t=1 is E1. Short run aggregate output increases to Y1 and the price level rises to P1. In period t=2, the AD curve shifts back to its initial pre-shock level AD0.
6 Pages(1500 words)Essay
Investing in SME's in developing countries. Discuss different facets associated with these investments (from the perspective of
In most nations for example the United states, the private equity funds are invested in businesses that are just starting operations or which have just been found, thus known as venture capital. The advantage of private equity in developing countries is that it has higher returns on investments (Gannon 16) as compared to other forms of investing such as loans or dividends.
8 Pages(2000 words)Essay
The businessmen are hesitant to hire and invest whereas the consumers are hesitant to spend because of uncertainty about their prospects. When an investor has to decide whether to invest in a new product or other facility, with the success of his decision dependent on future revenues and costs, there is bound to be an irreducible element.
3 Pages(750 words)Essay
Problem Set on Price Levels and Open Economy Macro
which may take long owing to the immobility and imperfections of the market. b) By shifting demand away from their own goods the resultant effect will be increased imports suggesting a weak currency in value as compared to the other country's currency. However the purchasing power parity (ppp) theory holds that over the long-term, the average value of exchange rate between two currencies depends on their relative purchasing power.
2 Pages(500 words)Essay
Australian Macro-Economy
Macro-management, of itself, is not the key ingredient in the process; rather, the essential building blocks have been trade liberalization, the opening of the capital account, the floating of the dollar, and the attempts at broad-ranging micro-economic reform, as yet incomplete.
7 Pages(1750 words)Essay
In order to efficiently use the eBay online market, the system has sorted the different items that were placed for selling on different categories. This would make searching items easier. The system also
3 Pages(750 words)Essay
45). The unemployment rates in the euro area and Japan have also increased notably. The actual situation is even worse as it does not include unemployment data for discouraged workers who are unemployed but not currently looking for work
1 Pages(250 words)Essay
The article documents the past focus of the federal government on inflation as the sole and greatest cause of macroeconomic problems. In recent times however it has become apparent that the problem is no longer inflations but more to
1 Pages(250 words)Essay
The UK economy is seen to be gradually emerging from the situation of economic turmoil. The attention of the government is now shifting to make it more sustainable, resilient and stable economy (Crown, 2014; OECD, 2013). In
5 Pages(1250 words)Essay
Let us find you another Essay on topic Different facets of the Macro Economy for FREE!
Contact us:
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us