I-clickers required

I-Clickers - required

• I-Clickers - required

• Exam Schedule

• Two mid terms
• March 2
• April 6
• Final May 5: 2PM

• Office Hours

• 11-12: Tues Thur
• Usually at VNB office
• Sometimes Monroe 262)
• At VNB Office 10:30 -12 most days

Reading

• Reading

• Four Books
• Andre Shleifer – “Inefficient Markets”
• Daniel Kahneman – “Thinking: Fast and Slow (should have already read)
• Edwin Burton – Sunit Shah – “Behavioral Finance”
• Michael Lewis – The Undoing Project

• Online Reading at Toolkit

• Relatively recent research

• Reading is difficult

Four Books

• Four Books

• Andre Shleifer – “Inefficient Markets”
• Daniel Kahneman – “Thinking: Fast and Slow (should have already read)
• Edwin Burton – Sunit Shah – “Behavioral Finance”
• Michael Lewis – The Undoing Project

• Online Reading at Toolkit

• Reading is difficult

• I-Clickers - required

• Lectures

• Exams

• Two mid terms
• Mch 2 and April 6 Final May 5: 2PM

• Office Hours 11-12: Tues Thur at VNB office (sometimes on grounds, Monroe 262)

Review of MPT & EMH

• Review of MPT & EMH

• Limits to Arbitrage

• Anomalies

• Serial Correlation in Stock Returns

Malkiel (online)

• Malkiel (online)

• Shiller (online)

• Shleifer (book, Ch 1)

• Fama (online)

Black on Toolkit

• Black on Toolkit

• Shliefer on Toolkit

• Burton & Shah, pp 1-51

Price captures all relevant information

• Price captures all relevant information

• Modern version based upon “No Arbitrage” assumption

• Why do we care?

• Implications

• Only new information effects prices
• Publicly known information has no value
• Investors should “index”
• Allocation efficiency

If noise traders are truly “random,” then their effects will “cancel out.” (Kind of a law of large numbers result)

• If noise traders are truly “random,” then their effects will “cancel out.” (Kind of a law of large numbers result)

• Noise traders are “systematic,” then arbitrage traders will “trade against them” and take all of their money

• Thus prices will be efficient in either case

October 19, 1987

• October 19, 1987

• 1992, Article by Eugene Fama and Ken French

• The Tech Bubble

• The Rise of Hedge Funds

Both authors are staunch supporters of EMH

• Both authors are staunch supporters of EMH

• 1992 Article gave a simple formula to pick stocks that “beat the market” consistently

• This lead “respectability” to a growing literature that simple formulae could “beat the market”

1999 Nasdaq up 100 percent for the year

• 1999 Nasdaq up 100 percent for the year

• Priceline:

• Came public at 20, rose to 200, fell to under 1
• No news of substance

• Nasdaq peaked at 5000 in March 2000

• Fell to 1800 by 2002