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Unformatted text preview: Homework 2 ECON 4721H: Money and Banking, Fall 2011 Due Monday, October 3, at the beginning of class Problem 1. Macroeonomy and Stock Market (25 pts) Read the article, Macro Forces in Market Confound Stock Pickers, by Tom Lauricella and Gregory Zuckerman, in The Wall Street Journal , linked from my website. And, write a short paragraph (about 200-300 words) to answer the following question. (http://online.wsj.com/article/SB10001424052748704190704575489743387052652.html) Hedge funds are moving in the same direction. Last year, 184 new macro hedge funds were launched, compared with 203 funds started by traditional stock investors. By contrast, in 2005 there were 894 new stock funds and 244 new macro funds. Why is the fraction of macro hedge funds increasing? Give a reasonable explanation, especially, in terms of the current stock market situation. Problem 2. Hedging Idiosyncratic Risks (20 pts) Consider two assets R 1 and R 2 which have mean 1 and 2 ( 1 < 2 ), and variance...
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- Fall '11