We are living in interesting times. Over the past 2 weeks, the S&P 500 index has dropped
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We are living in interesting times. Over the past 2 weeks, the S&P 500 index has dropped over 10%. At the same time, the short-end of the U.S. Treasury yield curve is approaching zero and long dated yields are at all time lows. Please evaluate the dynamic s of this situation. If the risk free rate is falling, what are not asset prices increasing? How would you describe the flow of funds and the directions of causality? What does CAPM say about equity beta (β) in the current environment? What predictions can you make based upon the current U.S. Treasury yield curve?
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