# Is finance under our domain?

Regarding this question:

## Examples of Factors in the ICAPM

The intertemporal captial asset pricing model (ICAPM) is different from the CAPM in that in the ICAPM, utility is conditioned on some set of state variables. The ICAPM results in a multifactor pricing model of the market if investor care about hedging against changing investment opportunities and exposure to these factors. Are there any canonical examples of these factors?

I know that the Fama-French multifactor models (e.g., the three factor model) are often justified on grounds of the ICAPM (or APT -- arbitrage pricing theory). What are the underlying risk factors that justify this model? Are there any other examples of underlying risk factors that show up a lot?

Is this too specific for our site?

For the record, I upvoted it, and intend to contribute an answer time permitting, but I wanted to know how far down the finance road do we go?

Would a question like:

On which day to options typically expire in US Markets?

be off topic?

If so, where do we draw the line? I always lean inclusive, especially in the beginning, regardless of how unpopular it seems to be here, but this is a community site.

For the record it's the Saturday following the third Friday :)

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We might also want to consider our overlap with personal finance, where they sometimes have slightly economic questions like: money.stackexchange.com/q/39786/20770 – Corone Nov 21 '14 at 14:29
My first thought (re: the part of Finance not covered by this Econ site) was not the Quant side of Finance but rather Accounting. – Steve S Nov 22 '14 at 19:56
@SteveS Accounting is not Finance in the first place :P – BCLC May 16 '15 at 5:45

## 2 Answers

I think that some finance has to be part of economics, but not every finance question should be on topic.

Questions about specific mathematical techniques (e.g. how do I price XX option?) in finance are probably better suited to the Quantitative Finance SE.

Questions like

On which day to options typically expire in US Markets?

seem more like basic general knowledge issues. I don't see what the economics content of this question is so I would say that is also off-topic.

In between, though, I think there are a lot of finance questions which are well-suited to econ SE. Those cover things like

• how should financial markets be regulated,
• what methods/metrics are used to assess how well financial markets function,
• questions about the relationship between financial markets and the rest of the economy,
• more generally, questions that are about the market part of financial markets.

Those are the kinds of questions that I would expect an expert economist working in finance to be interested in answering.

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(+1) I second this answer. – Alecos Papadopoulos Nov 19 '14 at 20:09
+1, it is also worth mentioning that there is also money.stackexchange.com dealing with personal finance, where some questions might also be better suited. – Corone Nov 21 '14 at 14:26

Thanks for the upvote!

As I mentioned in my comment, this is definitely economics. One of the foundational questions in economics is the determination of prices in equilibrium. The CAPM is a model of how prices of durable goods (capital) are formed in market equilibrium.

# The intersection of finance and economics

To note, there is a lot of recent research in economics that is trying to connect real markets with financial markets. This research is seen to be extremely important right now. Also, there is a lot of research in finance that incorporates economic tools. For example, people incorporate economics to study the incentive structure on corporate executives. This is also important within the intersection of applied micro and finance. Questions along these lines should definitely be included. As you guys mentioned, I would favor more inclusiveness.

For the most part, I would go so far as to say that finance is a sub-field of economics. (It's also worth noting that a large percentage of top finance professors got their PhD's in economics.)

# Rules for inclusion

Maybe some of these could be guidelines.

• As a general guideline, if it could be argued that the question is on topic in an economics class, then it should belong here. (As an example, notice the number of economics classes here that are about finance. There's about 10.)
• Also, it might be nice to suggest to people quant.stackexchange.com. But, if people are aware of quant.stackexchange.com and still choose to put the question here, then maybe we should give them the benefit of the doubt (as a rule) and let them post the question here (assuming it's not a cross-site duplicate). It might be better to err on the side of inclusiveness.
• But, yeah, it's hard to say which questions. But questions on quant.stackexchange.com are usually more computationally focused and usually deal more with the measurement and prediction. Questions that belong here should be more about the theories and the econometric testing of those theories---economics/financial theories of how the work works. (Although measurement is an important topic---it could still appear here. It's just hard write a hard and fast rule---maybe there shouldn't be one...)

# Example of a Quantitate Economics question

ZSpread in multiple curve framework. how do I calculate ZSpread for a govt. bond in a multiple curve framework? I have not come across the exact details anywhere so I want to verify if I'm right...

I think the linked question is a perfect example of a finance question that definitely belongs on quant.stackexchange.com.

# Fun Fact

When Markowitz went to publish his economics PhD thesis at the University of Chicago, Milton Friedman rejected it saying that it wasn't economics. Markowitz eventually got it through and the work that he did in his thesis later became a cornerstone of his winning of the Nobel prize in economics.

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+1 for the answer, and the fun fact. :) – Jason Nichols Nov 19 '14 at 20:48