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The Market for Promises - by alz - Not Investing Advice

anthonyleezhang.substack.com · 2,051 words · saved by 2 readers

"A financial asset is a non-physical asset whose value is derived from a contractual claim, such as bank deposits, bonds, and participations in companies' share capital. Financial assets are usually more liquid than other tangible assets, such as commodities or real estate." An academic economist might define a financial asset as essentially an Arrow security, or a combination of Arrow securities: a "claim" which pays something in some state of the world. This is a nice and useful formal definition, but also sheds little light on how financial assets differ from other assets, and what are the conditions needed for a well-functioning market in financial assets to exist. Let me propose an alternative definition. Financial assets are promises. Every financial asset is a promise to give someone something, possibly dependent on some source of randomness in the future. I might promise to pay you an amount which depends on what the level of the S&P 500 or oil prices or interest rates is (futu

The Market for Promises alz Jun 13, 2022 52 3 2 Share I start my undergrad investments class by posing the following question: what is a financial asset? Wikipedia gives the following painfully vacuous definition: "A financial asset is a non-physical asset whose value is derived from a contractual claim, such as bank deposits, bonds, and participations in companies' share capital. Financial assets are usually more liquid than other tangible assets, such as commodities or real estate." An academic economist might define a financial asset as essentially an Arrow security, or a combination of Arr

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