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يوفر موقع "شمسنا العربية" عدد من المساقات المتكاملة والتي تحتوي على فيديوهات وملفات التمارين والوظائف المنزلية والامتحانات (مع حلها) بالإضافة للمذكرات الدراسية.
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د.خلود الفليت
د.خلود الفليت
د.خلود الفليت
Financial Markets (ECON 252)
In the second of his two lectures in honor of Arthur Okun, Professor Summers points out that real interest rates have been very low in the current subprime crisis. This indicates that the shock to the economy was more a financial breakdown shock than a disinflation shock. But financial breakdown shocks are not necessarily very harmful to the economy, so long as financial intermediation capital is not destroyed. In a financial crisis like the present one, financial firms are likely to take the step of decreasing their leverage, often by contracting loans, which creates its own risks for the economy. Regulators should place pressure on financial institutions to raise their capital and should intervene in near foreclosure situations, but should not attempt to support housing prices.
00:00 - Chapter 1. Introduction and Recap
02:51 - Chapter 2. Understanding Recessions in Terms of the IS/LM Model
12:35 - Chapter 3. Financial Intermediation Capital: Essential for Economic Growth
23:08 - Chapter 4. U.S. Fiscal Policy Challenges and Objectives
36:44 - Chapter 5. Caution against Overdependence on Monetary Policy and the Federal Funds Rate
48:12 - Chapter 6. Obstacles in Introducing New Capital into and Increasing Direct Regulation of Financial Markets
57:50 - Chapter 7. Fiscal Policy Coordination in the International Context: Observations and Suggestions
01:06:56 - Chapter 8. Q&A: From Paulson's Proposal to Regulation of Lending and Leverage
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Professor Summers, former U. S. Treasury Secretary and former President of Harvard University, in this the first of two lectures in honor of former Yale Professor and Council of Economic Advisors chairman Arthur Okun, offers thoughts on the role of monetary policy in economic fluctuations, past and present. In the "Okun period," ending about when Okun died in 1980, the monetary authorities were very much involved in actually creating economic contractions. Inflation would repeatedly get out of control, the Fed would hit the brakes, and the economy would slow. But, that is not the story of the economic cycles of the last two decades. Recent economic cycles appear to be connected with factors endogenous to the financial system, such as bubbles or cycles of complacency among lending institutions. Summers argues that to understand the financial markets and the economy, we must consider models of multiple equilibria, such as bank run models, where a change in confidence may shift the economy drastically without any change in fundamentals.
00:00 - Chapter 1. A Profile of Lawrence Summers, Memories of Art Okun
12:48 - Chapter 2. Okun's Concerns on Stable Growth, Inflation, and Cyclical Fluctuations
29:05 - Chapter 3. The Interconnectedness of Modern Financial Crises Worldwide
40:05 - Chapter 4. The Bank Run Metaphor in Non-Bank Financial Crises
58:38 - Chapter 5. Behavioral Finance: Reasons for Positive Feedback
01:15:37 - Chapter 6. Summary and Questions on Government Interventions and Moral Hazard
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Professor Shiller, in his final lecture, reviews some of the most important tools for individual risk management. Significant inequality in domestic and international communities has created a need for social insurance programs, such as those created in Germany in the late 1800s. The tax system, bankruptcy laws, and government insurance programs are used to manage risk of personal wealth. However, each of these inventions must take account of psychological factors, such as moral hazard, in order to be effective without eliminating incentives to participate in the workforce, or other negative side effects. With regard to careers, including those in finance, young people should frame decisions with morality and purpose in mind, and with a broad perspective of both.
00:00 - Chapter 1. Sources of Financial Inequality
10:24 - Chapter 2. A Call for Social Insurance: The Government's Role in Risk Management
25:50 - Chapter 3. Social Security in the United States
34:32 - Chapter 4. Bankruptcy as a Risk Management Device
50:30 - Chapter 5. Balancing Morality and Psychology: Career Advice for Young Adults
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Options introduce an essential nonlineary into portfolio management. They are contracts between buyers and writers, who agree on exercise prices and dates at which the buyer can buy or sell the underlying (such as a stock). Options are priced based on the price and volatility of the underlying asset as well as the duration of the option contract. The Black-Scholes options pricing model is one of the most famous equations in finance and offers a useful first approximation for prices for option contracts. Options exchanges and futures exchanges both are involved in creating a liquid and transparent market for options. Options are not just for stocks; they are also important for other asset classes, such as real estate.
00:00 - Chapter 1. Options Vocabulary and the 1720 Stock Market Crash
14:58 - Chapter 2. The Standardization and Logic of Options: Options Exchanges
27:57 - Chapter 3. The Put-Call Parity Relation
36:32 - Chapter 4. Pricing an Option: The Black-Scholes Formula
51:35 - Chapter 5. Accounting for Volatility in the Black-Scholes Formula
01:00:08 - Chapter 6. Options on Home Prices as Risk Management
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Futures markets have expanded far beyond their initial application to farmer's planting and harvest cycles. These markets now allow investors and traders to set prices for a broad spectrum of assets and for a whole term structure stretching into the distant future. Some of these markets are often priced according to simple fair-value formulae, others are not. Futures markets can be in backwardation, where the future price is lower than the present, spot price. They can also be in contango, where the price rises with maturity and is higher in the future than it is today. The S&P/Case-Shiller Home Price Index is a recent invention that has transferred the mechanics of futures markets to the prices of single-family homes in ten real estate markets, in an effort to create a national market for residential real estate.
00:00 - Chapter 1. Introduction: On the Extinction of Ticker Tapes
01:49 - Chapter 2. How Futures Markets Included Financial Securities
18:06 - Chapter 3. Fair Value and the Influences of Contango and Backwardation
28:57 - Chapter 4. Volatility in the Oil Futures Market
41:31 - Chapter 5. Why Is the Price of Oil so High? On International Development, Nationalization, and World Politics
52:30 - Chapter 6. The Development of a Home Price Futures Market
01:08:01 - Chapter 7. The S&P Case-Shiller Home Price Index and Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Futures markets were started in Osaka, Japan in the 1600s to create an authoritative and meaningful market price for agricultural products, using standardized contracts. Since then, futures markets have been copied around the world to allow the hedging various future risks, financial and other. In the United States, the Chicago Mercantile Exchange and the Chicago Board of Trade have been the most popular futures trading markets. Although futures markets are changing and becoming more electronic, they are still important risk management tools for farmers and present financial opportunities for all manner of hedgers and arbitrageurs.
00:00 - Chapter 1. Introduction: Thoughts on Guest Speakers
07:23 - Chapter 2. From Osaka's Rice Warehouses: The Development of the Forward and Futures Market
24:47 - Chapter 3. Forward Contracts for Currency Exchange and Interest Rates
35:30 - Chapter 4. The Completely Financial Futures Market
51:44 - Chapter 5. A Case Study of Futures: The Price of Wheat and the Question of Storage
01:00:47 - Chapter 6. Backwardation and Spot Premiums
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Stephen Schwarzman, Co-Founder of Blackstone Group, a private equity firm, speaks about his experience in the industry. He discusses his thoughts on global finance, particularly at such an interesting and challenging point in the history of financial institutions. Although the near future might be rough for the United States and economies around the globe, capital does tend to come back and regulators are busy figuring out how best to put safeguards on the system. He also offers career advice and mentions some of the surprises he came across upon entering the world of finance.
00:00 - Chapter 1. Introduction: Stephen Schwarzman's Profile
03:00 - Chapter 2. In His Own Words: Early Discoveries in the Financial Market
12:36 - Chapter 3. Real Estate Assets Performance with Blackstone
17:16 - Chapter 4. Deconstructing the Subprime Crisis and "Jars of American SARS"
26:53 - Chapter 5. A Recession in the Aftermath: A New Financial World
34:49 - Chapter 6. Questions: Successes and Setbacks
44:54 - Chapter 7. Personal Lessons and Insights from the Financial World
55:44 - Chapter 8. Questions: Dealing with Failure and the Future of Investing and Private Equity
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
The exchanges in which stocks and other securities are traded serve an important function in finance. They bring together people interested in buying and selling securities in order to create a universal price. Brokers and dealers are also an important part of the system, their methods and standards are ultimately behind the success of the exchanges. Many information innovations have advanced the functioning of exchanges, going all the way back to the ticker machine, which was created to communicate the price of securities at a point in time to all interested parties. Electronic Communication Networks and automatic exchanges, more generally, have significantly impacted the exchange of securities and few exchanges still have physical trading floors.
00:00 - Chapter 1. Introduction: The Broker and the Dealer
15:11 - Chapter 2. Exchanges in the United States
24:02 - Chapter 3. From Ticker Tapes to ECNs: The Impact of Technology
42:12 - Chapter 4. Action on the "Floor" of the Stock Exchange
01:01:46 - Chapter 5. The Dealer's Life and the Gambler's Ruin Problem
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Most people are not very good at dealing in financial markets. Professional money managers, such as financial advisors and financial planners, assist individuals in matters of personal finance. FINRA and the SEC monitor the activities of these managers in order to protect individual investors. Mutual funds, exchange traded funds also exist to assist individual investments, and pension funds provide further services. These investment institutions help people to put money in diversified portfolios and, in some cases, reap some tax benefits for funding their retirement income.
00:00 - Chapter 1. Introduction
04:01 - Chapter 2. Financial Advisors and Financial Planners
15:20 - Chapter 3. Assets of U.S. Households and Nonprofits
24:09 - Chapter 4. Mutual Funds, ETFs, and Spendthrift Funds
41:53 - Chapter 5. Pension Funds: A History
54:53 - Chapter 6. Modern Innovations for Pension Management: ERISA and Beyond
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
First, Professor Shiller discusses today's changing financial system and recent market stabilization reform introduced by U.S. Treasury Secretary Henry Paulson. The financial system is inherently unstable and would benefit from more surveillance, particularly for consumer protection issues, given the recent subprime mortgage crisis. Although this particular reform might not be successful, more regulators and policymakers are talking about changing the stabilization system and will likely alter the role of the Fed in the future.
Second, Professor Shiller introduces the mechanics and role of investment banking. Investment banks underwrite securities and arrange for the issue of stocks and bonds by corporations. Corporations work with investment banks to navigate the Securities and Exchange Commission requirements for issuing securities. The banks then take on a "bought deal" or "best efforts deal" and help the corporation to find a market for the securities. Investment banking depends on the reputation of its bankers and, as we have seen recently, can be destroyed by rumors about the bank's insolvency.
00:00 - Chapter 1. The Paulson Proposal: Opportunities for Stabilization and Surveillance
13:45 - Chapter 2. The Fed as a Market Stability Regulator and News Media Bias
23:31 - Chapter 3. What Is Investment Banking? A Historical Glimpse
47:47 - Chapter 4. Investment Banks' Underwriting Process and the Importance of Reputation
01:05:40 - Chapter 5. The Investment Banker as the Manager of a Security
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Central Banks, originally created as bankers' banks, implement monetary policy using their leverage over the supply of money and credit standards. Since the Bank of England was founded in 1694, through the gold standard which lasted until the 1930s, and into modern times, central banks have pursued monetary policy to stabilize the banking system. Central banks monitor currency flows and inflation, acting when crises, such as bank runs, emerged. More recently, central banks have taken an increasingly expansive role in stabilizing economic fluctuations. In the yet to be confirmed current recession, the Federal Reserve has used open market operations and innovative financial arrangements to try to forestall the recession and bail out failing financial institutions.
00:00 - Chapter 1. Introduction: Thoughts on Icahn's Talk
04:49 - Chapter 2. The Gold Standard and the Earliest Central Bank
15:11 - Chapter 3. The Rise of the U.S. Federal Reserve System
25:30 - Chapter 4. The Abandonment of the Gold Standard and Adoption of Central Bank Autonomy
36:30 - Chapter 5. The Federal Funds Rate and Discount Rate
45:00 - Chapter 6. The Fed's Innovations against U.S. and Global Stagflation
01:00:47 - Chapter 7. A Trace though Recent Recessions and Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Mr. Carl Icahn, a prominent activist investor in corporate America, talks about his career and how he became interested in finance and involved in shareholder activism. He discusses his thoughts about today's economy and American businesses and their inherent threats and opportunities. He believes that the biggest challenge facing corporate America is weak management and that today's CEOs, with exceptions, might not be the most capable of leading global companies. He sees opportunities for current, intelligent college students to succeed in the corporate world if they work hard and can identify valuable business pursuits.
00:00 - Chapter 1. Carl Icahn: A Self-Introduction
06:10 - Chapter 2. An Anti-Darwinian Corporate America
19:56 - Chapter 3. Questions: Personal Motivation and Inspiration
29:21 - Chapter 4. Questions: Activist Investing in the Real World
38:53 - Chapter 5. Questions: Sensing Potential in Poorly Managed Companies
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Andrew Redleaf, a Yale graduate and manager of Whitebox Advisors, a hedge fund, discusses his experience with financial markets. He addresses one of the fundamental questions in finance--whether or not markets are efficient--and concludes that although they don't seem to be efficient, beating the market is very difficult. Mr. Redleaf discusses his thoughts about psychological barriers that make markets inefficient. He also comments on his beliefs regarding risk management and how people are compensated for mitigating risks, rather than for taking on risk as is often perceived. He ends by answering several questions from students.
00:00 - Chapter 1. The Markets Are Not Efficient
10:15 - Chapter 2. Psychological Factors of Market Inefficiency
25:57 - Chapter 3. Rewards Are for Risk-Mitigating, Not Risk-Taking
33:14 - Chapter 4. Issues in the Current U.S. and Global Economies
43:41 - Chapter 5. Questions: Cash and Bonds as Default Investments
01:04:35 - Chapter 6. Speculating on Backdated Options
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Banking: Successes and Failures
Financial Markets (ECON 252)
Real Estate is the biggest asset class and of great importance for both individuals and institutional investors. An array of economic and psychological factors impact real estate investment decisions and the public has changing ideas of real estate as a profitable investment. People's demand to buy a home by taking on long-term debt, called a mortgage, is often tied with the overall health of the economy and financial markets. In recessions, home buying tends to fall and the opposite holds in a strong economy. Commercial real estate, held indirectly by the public through partnerships and real estate investment trusts (REITs), is vulnerable to similar speculative activity. The most recent real estate boom illustrates the speculative nature of real estate, and its relation to financial and economic crises.
00:00 - Chapter 1. Introduction
02:17 - Chapter 2. The Development of Commercial Real Estate Assets, from DPP to REIT
17:34 - Chapter 3. The Evolution of Mortgages and Government Regulatory Measures
30:06 - Chapter 4. The Math of Mortgages, Fannie Mae, and Freddie Mac
41:50 - Chapter 5. Understanding the Current Housing Boom: Comparing Los Angeles and Milwaukee
57:37 - Chapter 6. Domestic and International Real Estate Booms
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
The stock market is the information center for the corporate sector. It represents individuals' ownership in publicly-held corporations. Although corporations have a variety of stakeholders, the shareholders of a for-profit corporation are central since the company is ultimately responsible to them. Companies offer dividends, stock repurchases and stock dividends to give profits back to shareholders or to signal information. Companies can also take on debt to raise capital, creating leverage. The Modigliani-Miller theory of a company's leverage in its simplest form implies the leverage ratio doesn't matter, but including bankruptcy costs and tax effects give us a positive theory of the ratio.
00:00 - Chapter 1. Introduction
04:24 - Chapter 2. The Corporation as a "Person"
14:02 - Chapter 3. Shares, Dilutions, and Stock Dividends
31:26 - Chapter 4. Distinguishing Earnings and Dividends, and Getting Money Out of Companies
42:38 - Chapter 5. Stock Repurchases and the Modigliani-Miller Proposition
57:13 - Chapter 6. Corporate Debt and Debt Irrelevance
01:07:58 - Chapter 7. The Lintner Model of Dividends
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
The markets for debt, both public and private far exceed the entire stock market in value and importance. The U.S. Treasury issues debt of various maturities through auctions, which are open only to authorized buyers. Corporations issue debt with investment banks as intermediaries. The interest rates are not set by the Treasury, the corporations or the investment bankers, but are determined by the market, reflecting economic forces about which there are a number of theories. The real and nominal rates and the coupons of a bond determine its price in the market. The term structure, which is the plot of yield-to-maturity against time-to-maturity indicates the value of time for points in the future. Forward rates are the future spot rates that can be calculated using today's bond prices. Finally, indexed bonds, which are indexed to inflation, offer the safest asset of all and their price reveals a fundamental economic indicator, the real interest rate.
00:00 - Chapter 1. Introduction
04:25 - Chapter 2. The Discount and Investment Rates
19:12 - Chapter 3. The Bid-Ask Spread and Murdoch's Wall Street Journal
29:17 - Chapter 4. Defining Bonds and the Pricing Formula
39:38 - Chapter 5. Derivation of the Term Structure of Interest Rates
52:34 - Chapter 6. Lord John Hicks's Forward Rates: Derivation and Calculations
01:06:09 - Chapter 7. Inflation and Interest Rates
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
David Swensen, Yale's Chief Investment Officer and manager of the University's endowment, discusses the tactics and tools that Yale and other endowments use to create long-term, positive investment returns. He emphasizes the importance of asset allocation and diversification and the limited effects of market timing and security selection. Also, the extraordinary returns of hedge funds, one of the more recent phenomena of portfolio management, should be looked at closely, with an eye for survivorship and back-fill biases.
00:00 - Chapter 1. Introduction: Changing Institutional Portfolio Management
03:59 - Chapter 2. Asset Allocation: The Power of Diversification
16:44 - Chapter 3. Balancing the Equity Bias into Sensible Diversification
20:48 - Chapter 4. The Emotional Pitfalls of Market Timing
32:58 - Chapter 5. Survivorship and Backfill Biases in Security Selection
43:17 - Chapter 6. Finding Value Investing Opportunities as an Active Manager
49:02 - Chapter 7. Yale's Portfolio and Results
54:48 - Chapter 8. Questions on New Investments, Remaining Bullish, and Time Horizons
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Regulation of financial and securities markets is intended to protect investors while still enabling them to make personal investment decisions. Psychological phenomena, such as magical thinking, overconfidence, and representativeness heuristic can cause deviations from rational behavior and distort financial decision-making. However, regulation and regulatory bodies, such as the SEC, FDIC, and SIPC, most of which were created just after the Great Depression, are intended to help prevent the manipulation of investors' psychological foibles and maintain trust in the markets so that a broad spectrum of investors will continue to participate.
00:00 - Chapter 1. Introduction
03:24 - Chapter 2. Human Errors in Financial Decision-Making
22:34 - Chapter 3. Why Regulation of Finance Is Necessary
27:51 - Chapter 4. The Rise of the Securities and Exchange Commission
39:18 - Chapter 5. Regulation of Private Investments and Hedge Funds
49:14 - Chapter 6. Nongovernmental Surveillance of Insider Trading and Accounting Regulation
59:45 - Chapter 7. Protections for the Individual Investor: the SIPC and the FDIC
01:10:38 - Chapter 8. Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Behavioral Finance is a relatively recent revolution in finance that applies insights from all of the social sciences to finance. New decision-making models incorporate psychology and sociology, among other disciplines, to explain economic and financial phenomenon, such as erratic stock price variations. Psychological patterns such as overconfidence and perceived kinks in the value function seem to impact financial decision-making, but are not included in classical theories such as the Expected Utility Theory. Kahneman and Tversky's Prospect Theory addresses such issues and sheds light on irrational deviations from traditional decision-making models.
00:00 - Chapter 1. What Is Behavioral Finance?
09:01 - Chapter 2. Market Volatility: Random, or Socially Influenced? A Present Value Analysis
19:58 - Chapter 3. Overconfidence: Its Ubiquity and Impact on Financial Markets
38:29 - Chapter 4. The Kahneman and Tversky Prospect Theory or, How People Make Choices
58:50 - Chapter 5. The Regret Theory and Fashion as a Measure of the Market
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Several theories in finance relate to stock price analysis and prediction. The efficient markets hypothesis states that stock prices for publicly-traded companies reflect all available information. Prices adjust to new information instantaneously, so it is impossible to "beat the market." Furthermore, the random walk theory asserts that changes in stock prices arise only from unanticipated new information, and so it is impossible to predict the direction of stock prices. Using statistical tools, we can attempt to test the hypotheses and to predict future stock prices. These tests show that efficient markets theory is a half-truth: it is difficult but not impossible for some people to beat the market.
00:00 - Chapter 1. Last Thoughts on Insurance and Catastrophe Bonds
06:28 - Chapter 2. Information Access and the Efficient Markets Hypothesis
20:00 - Chapter 3. Varying Degrees of Efficient Markets and No Dividends: The Case of First Federal Financial
41:44 - Chapter 4. The Random Walk Theory
51:30 - Chapter 5. The First Order Auto-regressive Model
56:59 - Chapter 6. Challenges in Forecasting the Market
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Insurance provides significant risk management to a broad public, and is an essential tool for promoting human welfare. By pooling large numbers of independent or low-correlated risks, insurance providers can minimize overall risk. The risk management is tailored to individual circumstances and reflects centuries of insurance industry experience with real risks and with moral hazard and selection bias issues. Probability theory and statistical tools help to explain how insurance companies use risk pooling to minimize overall risk. Innovation and government regulation have played important roles in the formation and oversight of insurance institutions.
00:00 - Chapter 1. Circumventing Selection Bias in the Equity Premium Puzzle
10:13 - Chapter 2. Politics in the Stock Market and Modern Mutual Funds
19:43 - Chapter 3. The Intuition behind Insurance
34:54 - Chapter 4. Multiline, Monoline, and P&C Insurances
43:52 - Chapter 5. The Advent and Development of the Insurance Industry
56:06 - Chapter 6. Government and NAIC Regulation of Insurance
01:05:14 - Chapter 7. Problems with Insurance Companies Today
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Portfolio diversification is the most fundamental concept of risk management. The allocation of financial resources in stocks, bonds, riskless, assets, oil and other assets determine the expected return and risk of a portfolio. Taking account of covariances and expected returns, investors can create a diversified portfolio that maximizes expected return for a given level of risk. An important mission of financial institutions is to provide portfolio-diversification services.
00:00 - Chapter 1. Introduction
02:37 - Chapter 2. Evaluation of Efficient Portfolio Frontiers
26:59 - Chapter 3. The Significance of Portfolio Diversification
38:43 - Chapter 4. The Tangency Portfolio and the Mutual Fund Theory
51:46 - Chapter 5. The Capital Asset Pricing Model
59:09 - Chapter 6. Implications of the Equity Premium and Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Technology and innovation underlie finance. In order to manage risks successfully, particularly long-term, we must pool large amounts of risk among many, diverse people and overcome barriers such as moral hazard and erroneous framing. Inventions such as insurance contracts and social security, and information technology all the way from such simple things as paper, and the postal service to modern computers have helped to manage risks and to encourage financial systems to address issues pertaining to risk. The tax and welfare system is one of the most important risk management systems.
00:00 - Chapter 1. Introduction
05:22 - Chapter 2. Introduction to the History of Risk Management
12:31 - Chapter 3. Long-Term Risk, Risk-Pooling, and Moral Hazard
26:51 - Chapter 4. Inequality and Communism from the View of Risk
35:53 - Chapter 5. Framing: Its Influence on Consumer Perception
47:59 - Chapter 6. The Development of Insurance and other Unobvious Financial Inventions
01:01:00 - Chapter 7. From the Paper Machine to the Present: Information Technology and Its Impact on Postal Service and Social Security
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Statistics and mathematics underlie the theories of finance. Probability Theory and various distribution types are important to understanding finance. Risk management, for instance, depends on tools such as variance, standard deviation, correlation, and regression analysis. Financial analysis methods such as present values and valuing streams of payments are fundamental to understanding the time value of money and have been in practice for centuries.
00:00 - Chapter 1. The Etymology of Probability
10:01 - Chapter 2. The Beginning of Probability Theory
15:38 - Chapter 3. Measures of Central Tendency: Independence and Geometric Average
33:12 - Chapter 4. Measures of Dispersion and Statistical Applications
50:39 - Chapter 5. Present Value
01:03:46 - Chapter 6. The Expected Utility Theory and Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Professor Shiller provides a description of the course, Financial Markets, including administrative details and the topics to be discussed in each lecture. He briefly discusses the importance of studying finance and each key topic. Lecture topics will include: behavioral finance, financial technology, financial instruments, commercial banking, investment banking, financial markets and institutions, real estate, regulation, monetary policy, and democratization of finance.
00:00 - Chapter 1. Introduction to the Course
11:24 - Chapter 2. Textbooks and Course Logistics
24:05 - Chapter 3. Technology and the Subprime Crisis
31:19 - Chapter 4. Is Studying Finance Moral?
46:44 - Chapter 5. Topics Covered in the Course
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (2011) (ECON 252)
After reviewing the main themes of this course, Professor Shiller shares his views about finance from a broader perspective. His first topic, the morality of finance, centers on Peter Unger's Living High and Letting Die and William Graham Sumner's What the Social Classes Owe Each Other. Subsequently, he addresses the hopelessness about the world's future that some see from Malthus' dismal law from the Essay on the Principle of Population, but contrasts it with a positive outlook on purposes and goals in life. While discussing the endurance and survival of financial contracts, he outlines the cases of Germany after World War I, Iran after the Islamic Revolution, and South Africa after the end of apartheid, in which financial contracts prevailed, but does not fail to mention the cases of Russia after the Russian Revolution and Japan after World War II, in which it has not been the case. After a brief comparison between Mathematical Finance and Behavioral Finance, he elaborates on the interplay between wealth and inequality, building on Jacob Hacker's and Paul Pearson's Winner-Take-All Politics, Karl Marx's Das Kapital, and Robert K. Merton concept of the cosmopolitan class. Following this, he emphasizes the democratization of finance as an important future trend and provides examples for this process from his books The Subprime Solution,The New Financial Order and Finance and the Good Society. Professor Shiller concludes the course with advice for finding the right career, highlighting the role of random events, but also the importance of a long-horizon outlook and an orientation towards history in the making.
00:00 - Chapter 1. The Course and Its Major Themes in Retrospect
06:48 - Chapter 2. The Morality of Finance
16:06 - Chapter 3. Hopelessness: Challenging Malthus's Dismal Law
30:05 - Chapter 4. The Endurance and Survival of Financial Contracts
37:41 - Chapter 5. The Importance of Financial Theory
39:13 - Chapter 6. Welfare and Poverty
50:36 - Chapter 7. The Democratization of Finance
01:02:18 - Chapter 8. Advice for the Right Career
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
As an introduction to public and nonprofit finance, Professor Shiller reflects on the remarkable financial structures that we have in support of public causes, making possible the achievement of higher goals that transcend individual satisfaction of needs. He gives examples of nonprofits, illustrating how that financial form can support a moral mission and social purpose. There is however sometimes a fine line between for-profit and public enterprises, because similar companies can be either for-profit or non-profit and because governments regulate and collect corporate profits taxes on for profit-organizations, implicitly creating a public purpose for them. Subsequently, he covers state and local finance, outlining the difference between operating budgets and capital budgets as well as the tax-exemption of municipal bonds. During the last part of the lecture, he provides an overview of historic improvement in governmental social insurance that ranges from progressive taxes to public services and to old age, survivors, and disability insurance. All of these advances in public and nonprofit finance have taken place in step with other advances in human society, notably advances in information technology.
00:00 - Chapter 1. Organizations Supporting Individual Causes
06:45 - Chapter 2. Nonprofits: Pursuing Common Interests
18:55 - Chapter 3. Government Involvement in For-Profits
32:26 - Chapter 4. Social Entrepreneurship and Distinguishing between Nonprofits and For-Profits
36:43 - Chapter 5. Municipal, State and Local Finance
46:06 - Chapter 6. Tax-Exemption of Municipal Bonds
51:24 - Chapter 7. Government Social Insurance -- From Progressive Taxes to Old Age, Survivors, and Disability Insurance (OASDI)
01:00:10 - Chapter 8. The Invention of Social Insurance in Germany
01:10:20 - Chapter 9. Review of the Social Purpose of Finance and of Behavioral Finance
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
As the starting point for this lecture, Professor Shiller contrasts the view of economics as the theory of the allocation of scarce resources with the view of economics as the study of exchange. After a discussion of the difference between brokers and dealers, he outlines the history of securities exchanges from ancient Rome, to the Amsterdam Stock Exchange and Jonathan's Coffee House in London, until the formation of the New York Stock Exchange. He complements this historic account with an overview of securities exchanges all over the world, covering India, China, Brazil, and Mexico. An example of a limit order book allows him to elaborate on the mechanics of trading at the National Association of Securities Dealers Automatic Quotation System (NASDAQ). Subsequently, he turns his attention to the growing importance of program trading and high frequency trading, but also discusses their impact on the stock market crash from October 19, 1987, as well as on the Flash Crash from May 6, 2010. When talking about fairness in financial markets, particularly with regard to the relation between private investors and brokers, he discusses the National Market System (NMS), the Intermarket Trading System (ITS), and consolidated quotation systems. He concludes this lecture with some reflections on the operations of dealers, addressing the role of inside information and the Gambler's Ruin problem.
00:00 - Chapter 1. Exchange as the Key Component of Economic Activity
05:50 - Chapter 2. Brokers vs. Dealers
12:25 - Chapter 3. History of Stock Exchanges around the World
24:28 - Chapter 4. Market Orders, Limit Orders, and Stop Orders
36:15 - Chapter 5. The Growing Importance of Electronic Trading
44:46 - Chapter 6. Instabilities Related to High Frequency Trading
59:14 - Chapter 7. The Frustrations as Trading as a Dealer
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
Professor Shiller argues that institutional investors are fundamentally important to our economy and our society. Following his thoughts about societal changes in a modern and capitalist world, he turns his attention to the fiduciary duties of investment managers. He emphasizes the "prudent person rule," and critically reflects on the limitations that these rules impose on investment managers. Elaborating on different forms of institutional money management, he covers mutual funds, contrasting the legislative environments in the U.S. and Europe, and trusts. In the treatment of the next form, pension funds, he starts out with the history of pension funds in the late 19th and the first half of the 20th century, and subsequently presents the legislative framework for pension funds before he outlines the differences of defined benefit and defined contribution plans. Professor Shiller finishes the list of forms of institutional money management with endowments, focusing on investment mistakes in endowment management, as well as family offices and family foundations.
00:00 - Chapter 1. Assets and Liabilities of U.S. Households and Nonprofit Organizations
11:30 - Chapter 2. Human Capital and Modern Societal Changes
17:04 - Chapter 3. The Fiduciary Duty of Investment Managers
28:23 - Chapter 4. Financial Advisors, Financial Planners, and Mortgage Brokers
33:53 - Chapter 5. Comparison of Mutual Funds between the U.S. and Europe
37:58 - Chapter 6. Trusts - Providing the Opportunity to Care for Your Children
43:14 - Chapter 7. Pension Funds and Defined Contribution Plans
58:23 - Chapter 8. History of Endowment Investing
01:02:34 - Chapter 9. Family Offices and Family Foundations
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
Professor Shiller characterizes investment banking by contrasting it to consulting, commercial banking, and securities trading. Then, in order to see the essence of investment banking, he reviews some of the principles that John Whitehead, the former chairman of Goldman Sachs, has formulated. These principles are the basis for a discussion of the substantial power that investment bankers have, and their role in society. Government regulation of these powerful investment banks has been a thorny issue for many years, and especially so now since they played a significant role in world financial crisis of the 2000s.
00:00 - Chapter 1. Key Elements of Investment Banking
09:50 - Chapter 2. Principles and Culture of Investment Banking
16:54 - Chapter 3. Regulation of Investment Banking
27:21 - Chapter 4. Shadow Banking and the Repo Market
33:04 - Chapter 5. Founger: From ECON 252 to Wall Street
46:24 - Chapter 6. Fougner: Steps to Take Today to Work on Wall Street
53:49 - Chapter 7. Fougner: From Wall Street to Silicon Valley, Experiences at Facebook
57:56 - Chapter 8. Fougner: Question and Answer Session
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
To begin the lecture, Professor Shiller explores the origins of central banking, from the goldsmith bankers in the United Kingdom to the founding of the Bank of England in 1694, which was a private institution that created stability in the U.K. financial system by requiring other banks to have deposits in it. Turning his attention to the U.S., Professor Shiller outlines the evolution of its banking system from the Suffolk System, via the National Banking era, to the founding of the Federal Reserve System in 1913. After presenting approaches to central banking in the European Union and in Japan, he emphasizes the federal funds rate, targeted by the Federal Open Market Committee, as well as the recent change to pay interest on reserve balances at the Federal Reserve, enacted by the Emergency Economic Stabilization Act from 2008, as important tools of U.S. monetary policy. After elaborating on reserve requirements, which are liability-based restrictions, and capital requirements, which are asset-based, he provides a simple, illustrative example that delivers an important intuition about the difficulties that banks have faced during the recent crisis from 2007-2008. This leads to Professor Shiller's concluding remarks about regulatory approaches to the prevention of future banking crises.
00:00 - Chapter 1. The Origins of Central Banking: The Bank of England
06:27 - Chapter 2. The Suffolk System and the National Banking Era in the U.S.
12:08 - Chapter 3. The Founding of the Federal Reserve System
25:46 - Chapter 4. The Move to Make Central Banks Independent
30:49 - Chapter 5. U.S. Monetary Policy: Federal Funds Rate and Reserve Requirements
45:23 - Chapter 6. Capital Requirements, Basel III and Rating Agencies
52:34 - Chapter 7. Capital Requirements and Reserve Requirements in the Context of a Simple Example
01:05:30 - Chapter 8. Capital Requirements to Stabilize the Financial System in Crisis Times
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
After introducing the core terms and main ideas of options in the beginning of the lecture, Professor Shiller emphasizes two purposes of options, a theoretical and a behavioral purpose. Subsequently, he provides a graphical representation for the value of a call and a put option, and, in this context, addresses the put-call parity for European options. Within the framework of the Binomial Asset Pricing model, he derives the value of a call-option from the no-arbitrage-principle, and, as a continuous-time analogue to this formula, he presents the Black-Scholes Option Pricing formula. He contrasts implied volatility, as represented by the VIX index of the Chicago Board Options Exchange, which uses a different formula in the spirit of Black-Scholes, with the actual S&P Composite volatility from 1986 until 2010. Professor Shiller concludes the lecture with some thoughts about options on single-family homes that he launched with his colleagues of the Chicago Mercantile Exchange in 2006.
00:00 - Chapter 1. Examples of Options Markets and Core Terms
07:11 - Chapter 2. Purposes of Option Contracts
17:11 - Chapter 3. Quoted Prices of Options and the Role of Derivatives Markets
24:54 - Chapter 4. Call and Put Options and the Put-Call Parity
34:56 - Chapter 5. Boundaries on the Price of a Call Option
39:07 - Chapter 6. Pricing Options with the Binomial Asset Pricing Model
51:02 - Chapter 7. The Black-Scholes Option Pricing Formula
55:49 - Chapter 8. Implied Volatility - The VIX Index in Comparison to Actual Market Volatility
01:09:33 - Chapter 9. The Potential for Options in the Housing Market
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
This is a guest lecture by Laura Cha, former vice chair of the China Securities Regulatory Commission and a member of the Executive Council of Hong Kong. In her introductory remarks, Ms. Cha emphasizes career opportunities in the private as well as the public sector of financial markets, and elaborates on her own career as a regulator in the Chinese market. In an ensuing discussion with Professor Shiller, she discusses motivations to work in the public sector, emphasizing the marketability of public sector skills in the private sector, but also a sense of mission to influence the creation and proper functioning of markets. Subsequently, in a conversation with the students of the class, she addresses the application and enforcement of regulation in China. Moreover, she outlines channels through which the Chinese government supports start-up companies, and addresses the recent mergers of various financial exchanges all over the world. Further topics of the conversation include the registration of Chinese companies on overseas exchanges, the plans for an international board at the Shanghai Stock Exchange, and a personal account of her studies at law school. Ms. Cha concludes her guest lecture by sharing her views about the Basel III rules.
00:00 - Chapter 1. The Private and the Public Sector of Financial Markets
07:20 - Chapter 2. China's Public Sector and Opportunities in Other Emerging Market
17:50 - Chapter 3. Motivations to Work in the Public Sector
23:26 - Chapter 4. The Interplay between the Western Business World and Emerging Markets
27:22 - Chapter 5: A Brief History of the Hong Kong Shanghai Banking Corporation (HSBC)
31:19 - Chapter 6. The Role and the Enforcement of Regulation in China
36:40 - Chapter 7. State-Owned Enterprises and Support for Start-Up Companies in China
45:45 - Chapter 8. Mergers of Stock Exchanges
49:25 - Chapter 9. Overseas Registration of Chinese Companies and the International Board in Shanghai
58:27 - Chapter 10. The Regulatory Impact of Basel III
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
To begin the lecture, Professor Shiller elaborates on the difference between forwards and futures and on the role of futures markets to infer future prices for the underlying commodity or financial asset. Generalizing the discussion beyond futures markets to derivatives markets, he assesses the issue of speculation in those markets and its impact on capitalist activity. Subsequently, he introduces the notions of counterparty risk, standardization of contracts, and clearinghouses within the framework of the first futures market, the market for rice futures in Dojima, Japan. While describing wheat futures, he addresses the price patterns of contango and backwardation, margin accounts that help alleviating counterparty risk, as well as the fair value formula for futures prices. The third commodity futures market is the oil futures market, which leads to description of the history of the oil market in general from the 1870s, to the first and second oil crisis, until the oil price spike in 2008. Professor Shiller concludes this lecture with financial futures, specifically S&P 500 index futures, touching upon the difference between physical delivery and cash settlement.
00:00 - Chapter 1. Forwards vs. Futures Contracts; Speculation in Derivative Markets
12:46 - Chapter 2. The First Futures Market and the Role of Standardization
23:03 - Chapter 3. Rice Futures and Contango vs. Backwardation
31:47 - Chapter 4. Counterparty Risk and Margin Accounts
37:50 - Chapter 5. Wheat Futures and the Fair Value Formula for Futures Pricing
47:00 - Chapter 6. Oil Futures
55:04 - Chapter 7. The History of the Oil Market
01:08:16 - Chapter 8. Financial Futures and the Difficulty of Forecasting
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
This is a guest lecture by Maurice "Hank" Greenberg, former Chief Executive Officer at American International Group. Mr. Greenberg starts his lecture with reflections on his time in the U.S. Army during World War II and the Korean War as well as on his first job in the insurance business as a junior underwriter. Subsequently, after meeting Cornelius Vander Starr, he restructures Starr's failing company The American Home and creates the American International Group (AIG). Factors that have contributed to AIG's success include global diversification through the opening of markets worldwide, the development of innovative insurance products, like political risk insurance and kidnap ransom insurance, and a unique corporate culture that manifests itself in Mr. Greenberg's view of the senior management during his time as a band of brothers. Turning his attention to the early years of the 21st century, he addresses Eliot Spitzer's role in his parting from AIG in 2005 and describes the developments at AIG that ultimately resulted in the government's bailout of the company. He concludes with his personal assessment of the causes of the financial crisis from 2007-2008 and a critical perspective on the role of the government during this crisis. In the following questions-and-answers session, he talks, among other topics, about the insurance industry in China, and shares his views about AIG's current CEO Robert Benmosche and the Dodd-Frank Act from 2010.
00:00 - Chapter 1. Introduction of Maurice "Hank" Greenberg
01:56 - Chapter 2. The Start of a Career in the Insurance Industry
10:33 - Chapter 3. Creating AIG and its Basic Principles of Operation
14:37 - Chapter 4. The Connection between Foreign Policy and Business
20:09 - Chapter 5. AIG's Growth and the Expansion into Financial Services
28:30 - Chapter 6. Eliot Spitzer and Greenberg's Parting from AIG
32:31 - Chapter 7. AIG Shortly before and during the Financial Crisis
44:45 - Chapter 8. Assessment of the Causes of the Financial Crisis
52:16 - Chapter 9. Questions & Answers
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
Banks are among our enduring of financial institutions. Their survival in so many different historical periods is testimony to their importance. Professor Shiller traces the origins of interest rates from Sumeria in 2000 BC, to ancient Greece and Rome, up to the Song Dynasty in China between the 10th and the 12th century. Subsequently, he looks at banking in Italy during the Renaissance and at the goldsmith bankers in 16th and 17th century England. Banks have survived so long because they solve adverse selection and moral hazard problems. Additionally, he covers Douglas Diamond's and Philip Dybvig's model, which does not only analyze the banks' role for liquidity provision, but also reveals the possibility of bank runs. This leads Professor Shiller to deposit insurance as a means to prevent bank runs. He discusses the Federal Deposit Insurance Corporation as well as the Federal Savings and Loans Insurance Corporation, together with the role that the latter played during the savings and loan crisis of the 1980s. The necessity to regulate banks in the presence of deposit insurance results in a discussion of the role of the Basel commission and an explicit calculation to illustrate the core principles of Basel III. At the end, Professor Shiller provides an overview of financial crises since the beginning of the 1990s, with the Mexican crisis of 1994-1995, and the Asian crisis of 1997.
00:00 - Chapter 1. Introduction
02:52 - Chapter 2. Basic Principles of Banking
10:46 - Chapter 3. The Beginnings of Banking: Types of Banks
24:00 - Chapter 4. Theory of Banks: Liquidity, Adverse Selection, Moral Hazard
33:03 - Chapter 5. Bank Runs, Deposit Insurance and Maintaining Confidence
41:07 - Chapter 6. Bank Regulation: Risk-Weighted Assets and Basel Agreements
53:27 - Chapter 7. Common Equity Requirements and Its Critics
01:02:49 - Chapter 8. Recent International Bank Crises
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
After talking about human failures and foibles in the last lecture, this lecture is concerned with regulation to minimize the impact of human errors. Professor Shiller outlines five different levels of regulation: Regulation on the firm level, on the level of trade groups, on the regional, the national, and the international level. Concerning the first level, he emphasizes the role of the board of directors as the regulators of a company, its duties of care and loyalty, and its responsibilities in the face of tunneling. On the level of trade groups, Professor Shiller presents the history of the New York Stock Exchange from the signing of the Buttonwood Agreement until today. The subsequent description of regional regulation centers on Blue Sky laws during the progressive era of the U.S. in the late 19th and early 20th century. On the national level of regulation, he covers the founding days of the Securities and Exchange Commission, its regulation of hedge funds, as well as its efforts against the trading of insider information and stock price manipulation. He complements his coverage of national regulation with the regulatory efforts in the aftermath of the financial crisis from 2007-2008, i.e. the creation of the Financial Stability Oversight Council and of the Consumer Financial Protection Bureau by the Dodd-Frank Act from 2010, paired with the European efforts in the course of the European Supervisory Framework, also from 2010. With respect to the fifth and final level of regulation - international regulation - Professor Shiller talks about the Basel Committee on Banking Supervisionand the G-20.
00:00 - Chapter 1. The Importance of Regulation and Its Challenges
08:10 - Chapter 2. Firm Level Regulation: The Board and Its Duties
25:37 - Chapter 3. Trade Group Level Regulation and Its Controversies
38:17 - Chapter 4. Local Regulation: The Progressive Era
42:59 - Chapter 5. National Regulation: The Securities and Exchange Commission
49:41 - Chapter 6. Minimal Regulation: Hedge Funds
55:39 - Chapter 7. Market Surveillance: Preventing Manipulation
01:04:25 - Chapter 8. Regulatory Pushes at Home and Abroad
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
Deviating from an absolute belief in the principle of rationality, Professor Shiller elaborates on human failings and foibles. Acknowledging impulses to exploit these weaknesses, he emphasizes the role of factors that keep these impulses in check, specifically the desire for praise-worthiness from Adam Smith's The Theory of Moral Sentiments. After a discourse on Personality Psychology, Professor Shiller starts a list of important topics in Behavioral Finance with Daniel Kahneman's and Amos's Tversky's Prospect Theory. The value function and the probability weighting function, as two key components of this theory, help explain certain patterns in people's everyday decision making, e.g. the existence of diamond ring insurance and airline flight insurance. An in-class experiment underscores the prevalence and importance of the concept of overconfidence. Further topics include Regret Theory, gambling behavior, cognitive dissonance, anchoring, the representativeness heuristic, and social contagion. Professor Shiller concludes the lecture with some perspectives on moral judgment in the business world, addressing shared values and integrity.
00:00 - Chapter 1: Human Failings & People's Desire for Praise-Worthiness
11:37 - Chapter 2. Personality Psychology
20:14 - Chapter 3. Prospect Theory and Its Implications for Everyday Decision Making
35:53 - Chapter 4. Regret Theory and Gambling Behavior
40:40 - Chapter 5. Overconfidence, and Related Anomalies, Opportunities for Manipulation
57:16 - Chapter 6. Cognitive Dissonance, Anchoring, Representativeness Heuristic, and Social Contagion
01:12:38 - Chapter 7. Moral Judgment in the Business World
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
Real estate finance is so important that it has a very long and complex history. Describing the history of mortgage financing, Professor Shiller highlights the historical development of well-institutionalized property rights for mortgage contracts. Subsequently, he focuses on modern financial institutions for commercial real estate, elaborating on Direct Participation Programs and Real Estate Investment Trusts as means for its financing. The distinction between short-term, balloon-payment mortgages before the Great Depression and long-term, amortizing mortgages thereafter shapes the discussion of residential real estate. His discussion of mortgage securitization and government support of mortgage markets centers around Fannie Mae and Freddie Mac, from their inception in 1938 and 1970, respectively, to the U.S. government's decision to put them into federal conservatorship in 2008. Finally, Professor Shiller covers collateralized mortgage obligations (CMOs) and elaborates on moral hazard in the mortgage origination process.
00:00 - Chapter 1. Early History of Real Estate Finance & the Role of Property Rights
13:39 - Chapter 2. Commercial Real Estate and Investment Partnerships
28:12 - Chapter 3. Residential Real Estate Financing before the Great Depression
32:19 - Chapter 4. Residential Real Estate Financing after the Great Depression
48:02 - Chapter 5. Mortgage Securitization & Government Support of Mortgage Markets
01:01:06 - Chapter 6. Mortgage Securities & the Financial Crisis from 2007-2008
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
Professor Shiller emphasizes the worldwide importance of corporations by looking at World Bank data for corporate stocks as traded on global stock markets. He, then, turns his attention to the concept of a corporation, elaborating on the role of shareholders, the board of directors, and the Chief Operating Officer. He compares and contrasts for-profit and nonprofit corporations. He discusses equity financing of for-profit corporations, covering market capitalization, dividends, share repurchases, dilution, and the difference between common and preferred shares. He discusses, and rejects claims that share issuance is not really important for capital raising in modern times. Professor Shiller concludes this lecture with a discussion of the balance sheets of two well-known corporations, Xerox and Microsoft.
00:00 - Chapter 1. Introduction
00:55 - Chapter 2. Professor Shiller's Personal Experiences of Founding a Corporation
05:05 - Chapter 3. Worldwide Importance of Corporate Stocks
15:46 - Chapter 4. The Structure of a Corporation
28:28 - Chapter 5. Corporate Financing through Equity
37:10 - Chapter 6. Different Forms of Corporate Financing
46:56 - Chapter 7. The Interplay between Corporate Decisions and Financial Markets
58:54 - Chapter 8. The Balance Sheets of Xerox and Microsoft
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
Professor Shiller devotes the beginning of the lecture to exploring the theoretical determinants of the level of interest rates. Eugen von Boehm-Bawerk names technical progress, roundaboutness, and time preference as the crucial factors. Professor Shiller complements von Boehm-Bawerk's analysis with two of Irving Fisher's modeling approaches, the view of the interest rate as the equilibrium variable in the savings market and the perspective of simple Robinson Crusoe economies on the determination of interest rates. Subsequently, Professor Shiller focuses his attention on present discounted values and derives the price for discount bonds, consols, annuities, as well as corporate bonds. His treatment of the term structure of interest rates leads him to forward rates and the expectations theory of the term structure of interest rates. At the end of the lecture, he offers insights on usurious loan practices, from ancient times until today, and describes the improvements in consumer financial protection that have been made after the financial crisis of the 2000s.
00:00 - Chapter 1. Introduction
01:24 - Chapter 2. Theories for the Determinants of Interest Rates
28:11 - Chapter 3. Present Discounted Values, Compounding, and Pricing Bond Contracts
47:50 - Chapter 4. Forward Rates and the Term Structure of Interest Rates
01:03:29 - Chapter 5. The Ancient History of Interest Rates and Usurious Loans
01:11:08 - Chapter 6. Elizabeth Warren and the Consumer Financial Protection Bureau
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
Initially, Professor Shiller looks back at David Swensen's guest lecture, in particular with respect to the Sharpe ratio as a performance measure for investment strategies. He emphasizes the empirical difficulty to measure the standard deviation, specifically for illiquid asset classes, and elaborates on investment strategies that manipulate the Sharpe ratio. Subsequently, he focuses on the Efficient Markets Hypothesis. This theory states that markets efficiently incorporate all public information, which consequently renders beating the market impossible. For example, technical analysis fails to provide powerful, short-run profit opportunities. A consequence of the Efficient Markets Hypothesis is that stock prices follow a Random Walk, as innovations to the stock price must be solely attributable to news. Professor Shiller contrasts the behavior of a Random Walk with that of a First-Order Autoregressive Process, and concludes that the latter statistical process matches the reality of the stock market more closely. This conclusion, combined with the evidence that investment managers like David Swensen are capable of consistently outperforming the market leads Professor Shiller to the conclusion that the Efficient Markets Hypothesis is a half-truth.
00:00 - Chapter 1. Swensen's Lecture in Retrospect and Manipulations of the Sharpe Ratio
16:06 - Chapter 2. History of the Efficient Markets Hypothesis
29:10 - Chapter 3. Testing the Efficient Markets Hypothesis
40:49 - Chapter 4. Technical Analysis and the Head and Shoulders Pattern
47:04 - Chapter 5. Random Walk vs. First-Order Autoregressive Process as Stock Price Model
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
00:00 - Chapter 1. Introduction, Overview, and "Barron's" Criticism of the Swensen Approach to Endowment Management
15:49 - Chapter 2. Asset Allocation
30:38 - Chapter 3. Market Timing
37:16 - Chapter 4. Security Selection
46:02 - Chapter 5. "Barron's" Criticism Revisited
52:57 - Chapter 6. Questions & Answers
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
In this lecture, Professor Shiller introduces mean-variance portfolio analysis, as originally outlined by Harry Markowitz, and the capital asset pricing model (CAPM) that has been the cornerstone of modern financial theory. Professor Shiller commences with the history of the first publicly traded company, The United East India Company, founded in 1602. Incorporating also the more recent history of stock markets all over the world, he elaborates on the puzzling size of the equity premium. very high historical return of stock market investments. After introducing the notion of an Efficient Portfolio Frontier, he covers the concept of the Tangency Portfolio, which leads him to the Mutual Fund Theorem. Finally, the consideration of equilibrium in the stock market leads him to the Capital Asset Pricing Model, which emphasizes market risk as the determinant of a stock's return.
00:00 - Chapter 1. Introduction
01:14 - Chapter 2. United East India Company and Amsterdam Stock Exchange
16:19 - Chapter 3. The Equity Premium Puzzle
21:09 - Chapter 4. Harry Markowitz and the Origins of Portfolio Analysis
29:41 - Chapter 5. Leverage and the Trade-Off between Risk and Return
39:55 - Chapter 6. Efficient Portfolio Frontiers
01:00:21 - Chapter 7. Tangency Portfolio and Mutual Fund Theorem
01:09:20 - Chapter 8. Capital Asset Pricing Model (CAPM)
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
In the beginning of the lecture, Professor Shiller reviews the probability theory concepts from the last class and extends these concepts by the central limit theorem. Afterwards, he turns his attention toward the role of financial technology and financial invention within society, in particular with regard to the management of big and important risks. He proceeds along the lines of a "framing" theme, referring to the context and the associations of inventions, and along the lines of a "device" theme, emphasizing the creation of complicated structures set up for a certain purpose, which require learning over time to be improved. His coverage of financial inventions spans limited liability for corporations and the framework of Township and Village Enterprises in China, as well as inflation indexation from its inception around the turn of the 19th century to its applications in Chile and Mexico in the 20th century. Professor Shiller concludes the lecture elaborating on swap contracts as financial inventions, and on the subsequent development of credit default swaps.
00:00 - Chapter 1. Introduction
02:38 - Chapter 2. Review of Probability Theory and the Central Limit Theorem
14:21 - Chapter 3. The Role of Finance in Society
28:52 - Chapter 4. A Selection of Modern Inventions
39:14 - Chapter 5. Corporations and Limited Liability
51:33 - Chapter 6. Inflation Indexation
01:07:42 - Chapter 7. Swap Contracts
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
Professor Shiller introduces basic concepts from probability theory and embeds these concepts into the concrete context of financial crises, with examples from the financial crisis from 2007-2008. Subsequent to a historical narrative of the financial crisis from 2007-2008, he turns to the definition of the expected value and the variance of a random variable, as well as the covariance and the correlation of two random variables. The concept of independence leads to the law of large numbers, but financial crises show that the assumption of independence can be deceiving, in particular through its impact on the computation of Value at Risk measures. Moreover, he covers regression analysis for financial returns, which leads to the decomposition of a financial asset's risk into idiosyncratic and systematic risk. Professor Shiller concludes by talking about the prominent assumption that random shocks to the financial economy are normally distributed. Historical stock market patterns, specifically during crises times, establish that outliers occur too frequently to be compatible with the normal distribution.
00:00 - Chapter 1. Financial Crisis of 2007-2008 and Its Connection to Probability Theory
05:51 - Chapter 2. Introduction to Probability Theory
09:58 - Chapter 3. Financial Return and Basic Statistical Concepts
26:29 - Chapter 4. Independence and Failure of Independence as a Cause for Financial Crises
38:58 - Chapter 5. Regression Analysis, Systematic vs. Idiosyncratic Risk
58:59 - Chapter 6. Fat-Tailed Distributions and their Role during Financial Crises
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Markets (2011) (ECON 252)
Professor Shiller provides a description of the course, including its general theme, the relevant textbooks, as well as the interplay of his course with Professor Geanakoplos's course "Economics 251--Financial Theory." Finance, in his view, is a pillar of civilized society, dealing with the allocation of resources through space and time in order to manage big and important risks. After talking about finance as an occupation, he emphasizes the moral imperative to use wealth for the purposes of philanthropy, in the spirit of Andrew Carnegie, but also of Bill Gates and Warren Buffett. Subsequently, he introduces the guest speakers David Swensen, Yale University's chief investment officer, Maurice "Hank" Greenberg, former Chief Executive Officer (CEO) at American International Group (AIG) and current CEO of C.V. Starr & Co. and of Starr International, and Laura Cha, former vice chair of the China Securities Regulatory Commission, member of the Executive Council of Hong Kong and of the government of the People's Republic of China, and director of the Hong Kong Shanghai Banking Corporation (HSBC). Finally, he concludes with a description of the topics to be discussed in each lecture.
00:00 - Chapter 1. Introduction to the Course
06:12 - Chapter 2. Broader Context of the Course
22:41 - Chapter 3. Finance as an Occupation
30:40 - Chapter 4. Using Wealth for a Purpose
40:30 - Chapter 5. Outside Speakers and Teaching Assistants
50:26 - Chapter 6. Outline of the Lectures
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Spring 2011.
Financial Theory (ECON 251)
In order to understand the precise predictions of the Leverage Cycle theory, in this last class we explicitly solve two mathematical examples of leverage cycles. We show how supply and demand determine leverage as well as the interest rate, and how impatience and volatility play crucial roles in setting the interest rate and the leverage. Mathematically, the model helps us identify the three key elements of a crisis. First, scary bad news increases uncertainty. Second, leverage collapses. Lastly, the most optimistic people get crushed, so the new marginal buyers are far less sanguine about the economy. The result is that the drop in asset prices is amplified far beyond what any market participant would expect from the news alone. If we want to mitigate the fallout from a crisis, the place to begin is in controlling those three elements. If we want to prevent leverage cycle crashes, we must monitor leverage and regulate it, the same way we monitor and adjust interest rates.
00:00 - Chapter 1. Introduction
02:15 - Chapter 2. Understanding Leverage
13:45 - Chapter 3. Supply and Demand Effects on Interest Rates and Leverage
21:52 - Chapter 4. Impatience and Volatility on Setting Leverage
34:48 - Chapter 5. Bad News, Pessimism, Price Drops, and Leverage Cycle Crashes
48:01 - Chapter 6. Can Leverage Be Monitored?
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
Standard financial theory left us woefully unprepared for the financial crisis of 2007-09. Something is missing in the theory. In the majority of loans the borrower must agree on an interest rate and also on how much collateral he will put up to guarantee repayment. The standard theory presented in all the textbooks ignores collateral. The next two lectures introduce a theory of the Leverage Cycle, in which default and collateral are endogenously determined. The main implication of the theory is that when collateral requirements get looser and leverage increases, asset prices rise, but then when collateral requirements get tougher and leverage decreases, asset prices fall. This stands in stark contrast to the fundamental value theory of asset pricing we taught so far. We'll look at a number of facts about the subprime mortgage crisis, and see whether the new theory offers convincing explanations.
00:00 - Chapter 1. Assumptions on Loans in the Subprime Mortgage Market
18:27 - Chapter 2. Market Weaknesses Revealed in the 2007-2009 Financial Crisis
29:00 - Chapter 3. Collateral and Introduction to the Leverage Cycle
38:53 - Chapter 4. Contrasts between the Leverage Cycle and CAPM
43:36 - Chapter 5. Leverage Cycle Theory in Recent Financial History
01:03:55 - Chapter 6. Negative Implications of the Leverage Cycle
01:14:14 - Chapter 7. Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
This lecture addresses some final points about the CAPM. How would one test the theory? Given the theory, what's the right way to think about evaluating fund managers' performance? Should the manager of a hedge fund and the manager of a university endowment be judged by the same performance criteria? More generally, how should we think about the return differential between stocks and bonds? Lastly, looking back to the lectures on Social Security earlier in the semester, how should the CAPM inform our thinking about the role of stocks and bonds in Social Security? Can the views of Democrats and Republicans be reconciled? What if Social Security were privatized, but workers were forced to hold their assets in a new kind of asset called PAAWS, which pay the holder more if the wage of young workers is higher?
00:00 - Chapter 1. Testing the Capital Asset Pricing Model
14:08 - Chapter 2. Evaluation of Fund Management Performance Using CAPM
22:30 - Chapter 3. Reassessing Assets within Social Security
53:04 - Chapter 4. Reconciling Democratic and Republican Views on Social Security
59:32 - Chapter 5. Geanakoplos's Personal Annuitized Average Wage Securities
01:08:48 - Chapter 6. The Black-Scholes Model
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
This lecture continues the analysis of the Capital Asset Pricing Model, building up to two key results. One, the Mutual Fund Theorem proved by Tobin, describes the optimal portfolios for agents in the economy. It turns out that every investor should try to maximize the Sharpe ratio of his portfolio, and this is achieved by a combination of money in the bank and money invested in the "market" basket of all existing assets. The market basket can be thought of as one giant index fund or mutual fund. This theorem precisely defines optimal diversification. It led to the extraordinary growth of mutual funds like Vanguard. The second key result of CAPM is called the covariance pricing theorem because it shows that the price of an asset should be its discounted expected payoff less a multiple of its covariance with the market. The riskiness of an asset is therefore measured by its covariance with the market, rather than by its variance. We conclude with the shocking answer to a puzzle posed during the first class, about the relative valuations of a large industrial firm and a risky pharmaceutical start-up.
00:00 - Chapter 1. The Mutual Fund Theorem
03:47 - Chapter 2. Covariance Pricing Theorem and Diversification
25:19 - Chapter 3. Deriving Elements of the Capital Asset Pricing Model
40:25 - Chapter 4. Mutual Fund Theorem in Math and Its Significance
52:36 - Chapter 5. The Sharpe Ratio and Independent Risks
01:04:19 - Chapter 6. Price Dependence on Covariance, Not Variance
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
Until now we have ignored risk aversion. The Bernoulli brothers were the first to suggest a tractable way of representing risk aversion. They pointed out that an explanation of the St. Petersburg paradox might be that people care about expected utility instead of expected income, where utility is some concave function, such as the logarithm. One of the most famous and important models in financial economics is the Capital Asset Pricing Model, which can be derived from the hypothesis that every agent has a (different) quadratic utility. Much of the modern mutual fund industry is based on the implications of this model. The model describes what happens to prices and asset holdings in general equilibrium when the underlying risks can't be hedged in the aggregate. It turns out that the tools we developed in the beginning of this course provide an answer to this question.
00:00 - Chapter 1. Risk Aversion
03:35 - Chapter 2. The Bernoulli Explanation of Risk
12:38 - Chapter 3. Foundations of the Capital Asset Pricing Model
22:15 - Chapter 4. Accounting for Risk in Prices and Asset Holdings in General Equilibrium
54:11 - Chapter 5. Implications of Risk in Hedging
01:09:40 - Chapter 6. Diversification in Equilibrium and Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
This lecture reviews the intuition from the previous class, where the idea of dynamic hedging was introduced. We learn why the crucial idea of dynamic hedging is marking to market: even when there are millions of possible scenarios that could come to pass over time, by hedging a little bit each step of the way, the number of possibilities becomes much more manageable. We conclude the discussion of hedging by introducing a measure for the average life of a bond, and show how traders use this to figure out the appropriate hedge against interest rate movements.
00:00 - Chapter 1. Review of Dynamic Hedging
09:15 - Chapter 2. Dynamic Hedging as Marking-to-Market
19:55 - Chapter 3. Dynamic Hedging and Prepayment Models in the Market
30:50 - Chapter 4. Appropriate Hedges against Interest Rate Movements
01:05:15 - Chapter 5. Measuring the Average Life of a Bond
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
Suppose you have a perfect model of contingent mortgage prepayments, like the one built in the previous lecture. You are willing to bet on your prepayment forecasts, but not on which way interest rates will move. Hedging lets you mitigate the extra risk, so that you only have to rely on being right about what you know. The trouble with hedging is that there are so many things that can happen over the 30 year life of a mortgage. Even if interest rates can do only two things each year, in 30 years there are over a billion interest rate scenarios. It would seem impossible to hedge against so many contingencies. The principle of dynamic hedging shows that it is enough to hedge yourself against the two things that can happen next year (which is far less onerous), provided that each following year you adjust the hedge to protect against what might occur one year after that. To illustrate the issue we reconsider the World Series problem from a previous lecture. Suppose you know the Yankees have a 60% chance of beating the Dodgers in each game and that you can bet any amount at 60:40 odds on individual games with other bookies. A naive fan is willing to bet on the Dodgers winning the whole Series at even odds. You have a 71% chance of winning a bet against the fan, but bad luck can cause you to lose anyway. What bets on individual games should you make with the bookies to lock in your expected profit from betting against the fan on the whole Series?
00:00 - Chapter 1. Fundamentals of Hedging
15:38 - Chapter 2. The Principle of Dynamic Hedging
24:26 - Chapter 3. How Does Hedging Generate Profit?
43:48 - Chapter 4. Maintaining Profits from Dynamic Hedging
54:08 - Chapter 5. Dynamic Hedging in the Bond Market
01:10:30 - Chapter 6. Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
Professor Geanakoplos explains how, as a mathematical economist, he became interested in the practical world of mortgage securities, and how he became the Head of Fixed Income Securities at Kidder Peabody, and then one of six founding partners of Ellington Capital Management. During that time Kidder Peabody became the biggest issuer of collateralized mortgage obligations, and Ellington became the biggest mortgage hedge fund. He describes securitization and trenching of mortgage pools, the role of investment banks and hedge funds, and the evolution of the prime and subprime mortgage markets. He also discusses agent based models of prepayments in the mortgage market.
00:00 - Chapter 1. Fannie Mae, Freddie Mac, and the Mortgage Securities Market
17:01 - Chapter 2. Collateralized Mortgage Obligations
22:44 - Chapter 3. Modeling Prepayment Tendencies at Kidder Peabody
35:40 - Chapter 4. The Rise of Ellington Capital Management and the Role of Hedge Funds
52:52 - Chapter 5. The Leverage Cycle and the Subprime Mortgage Market
01:13:51 - Chapter 6. The Credit Default Swap
01:18:36 - Chapter 7. Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2010.
Financial Theory (ECON 251)
A mortgage involves making a promise, backing it with collateral, and defining a way to dissolve the promise at prearranged terms in case you want to end it by prepaying. The option to prepay, the refinancing option, makes the mortgage much more complicated than a coupon bond, and therefore something that a hedge fund could make money trading. In this lecture we discuss how to build and calibrate a model to forecast prepayments in order to value mortgages. Old fashioned economists still make non-contingent forecasts, like the recent predictions that unemployment would peak at 8%. A model makes contingent forecasts. The old prepayment models fit a curve to historical data estimating how sensitive aggregate prepayments have been to changes in the interest rate. The modern agent based approach to modeling rationalizes behavior at the individual level and allows heterogeneity among individual types. From either kind of model we see that mortgages are very risky securities, even in the absence of default. This raises the question of how investors and banks should hedge them.
00:00 - Chapter 1. Review of Mortgages
03:20 - Chapter 2. Complications of Refinancing Mortgages
19:26 - Chapter 3. Non-contingent Forecasts of Mortgage Value
28:40 - Chapter 4. The Modern Behavior Rationalizing Model of Mortgage Value
54:07 - Chapter 5. Risk in Mortgages and Hedging
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
This lecture is about optimal exercise strategies for callable bonds, which are bonds bundled with an option that allows the borrower to pay back the loan early, if she chooses. Using backward induction, we calculate the borrower's optimal strategy and the value of the option. As with the simple examples in the previous lecture, the option value turns out to be very large. The most important callable bond is the fixed rate amortizing mortgage; calling a mortgage means prepaying your remaining balance. We examine how high bankers must set the mortgage rate in order to compensate for the prepayment option they give homeowners. Looking at data on mortgage rates we see that mortgage borrowers often fail to prepay optimally.
00:00 - Chapter 1. Introduction to Callable Bonds and Mortgage Options
12:14 - Chapter 2. Assessing Option Value via Backward Induction
42:44 - Chapter 3. Fixed Rate Amortizing Mortgage
57:51 - Chapter 4. How Banks Set Mortgage Rates for Prepayers
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
In the first part of the lecture we wrap up the previous discussion of implied default probabilities, showing how to calculate them quickly by using the same duality trick we used to compute forward interest rates, and showing how to interpret them as spreads in the forward rates. The main part of the lecture focuses on the powerful tool of backward induction, once used in the early 1900s by the mathematician Zermelo to prove the existence of an optimal strategy in chess. We explore its application in a series of optimal stopping problems, starting with examples quite distant from economics such as how to decide when it is time to stop dating and get married. In each case we find that the option to continue is surprisingly valuable.
00:00 - Chapter 1. Calculating Default Probabilities
14:58 - Chapter 2. Relationship Between Defaults and Forward Rates
28:09 - Chapter 3. Zermelo, Chess, and Backward Induction
36:48 - Chapter 4. Optimal Stopping Games and Backward Induction
01:06:47 - Chapter 5. The Optimal Marriage Problem
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
According to the rational expectations hypothesis, traders know the probabilities of future events, and value uncertain future payoffs by discounting their expected value at the riskless rate of interest. Under this hypothesis the best predictor of a firm's valuation in the future is its stock price today. In one famous test of this hypothesis, it was found that detailed weather forecasts could not be used to improve on contemporaneous orange prices as a predictor of future orange prices, but that orange prices could improve contemporaneous weather forecasts. Under the rational expectations hypothesis you can infer more about the odds of corporate or sovereign bonds defaulting by looking at their prices than by reading about the financial condition of their issuers.
00:00 - Chapter 1. The Rational Expectations Hypothesis
12:18 - Chapter 2. Dependence on Prices in a Certain World
24:42 - Chapter 3. Implications of Uncertain Discount Rates and Hyperbolic Discounting
46:53 - Chapter 4. Uncertainties of Default
On the other hand, when discount rates rather than payoffs are uncertain, today's one year rate grossly overestimates the long run annualized rate. If today's one year interest rate is 4%, and if the one year interest rate follows a geometric random walk, then the value today of one dollar in T years is described in the long run by the hyperbolic function 1/ √T, which is much larger than the exponential function 1/(1.04)T, no matter what the constant K. Hyperbolic discounting is the term used to describe the tendency of animals and humans to value the distant future much more than would be implied by (exponentially) discounting at a constant rate such as 4%. Hyperbolic discounting can justify expenses taken today to improve the environment in 500 years that could not be justified under exponential discounting.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
Until now, the models we've used in this course have focused on the case where everyone can perfectly forecast future economic conditions. Clearly, to understand financial markets, we have to incorporate uncertainty into these models. The first half of this lecture continues reviewing the key statistical concepts that we'll need to be able to think seriously about uncertainty, including expectation, variance, and covariance. We apply these concepts to show how diversification can reduce risk exposure. Next we show how expectations can be iterated through time to rapidly compute conditional expectations: if you think the Yankees have a 60% chance of winning any game against the Dodgers, what are the odds the Yankees will win a seven game series once they are up 2 games to 1? Finally we allow the interest rate, the most important variable in the economy according to Irving Fisher, to be uncertain. We ask whether interest rate uncertainty tends to make a dollar in the distant future more valuable or less valuable.
00:00 - Chapter 1. Expectation, Variance, and Covariance
19:06 - Chapter 2. Diversification and Risk Exposure
33:54 - Chapter 3. Conditional Expectation
53:39 - Chapter 4. Uncertainty in Interest Rates
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
In this lecture, we use the overlapping generations model from the previous class to see, mathematically, how demographic changes can influence interest rates and asset prices. We evaluate Tobin's statement that a perpetually growing population could solve the Social Security problem, and resolve, in a surprising way, a classical argument about the link between birth rates and the level of the stock market. Lastly, we finish by laying some of the philosophical and statistical groundwork for dealing with uncertainty.
00:00 - Chapter 1. Stationarity and Equilibrium in the Overlapping Generations Model
16:38 - Chapter 2. Evaluating Tobin's Thoughts on Social Security
35:07 - Chapter 3. Birth Rates and Stock Market Levels
01:02:30 - Chapter 4. Philosophical and Statistical Framework of Uncertainty
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
In order for Social Security to work, people have to believe there's some possibility that the world will last forever, so that each old generation will have a young generation to support it. The overlapping generations model, invented by Allais and Samuelson but here augmented with land, represents such a situation. Financial equilibrium can again be reduced to general equilibrium. At first glance it would seem that the model requires a solution of an infinite number of supply equals demand equations, one for each time period. But by assuming stationarity, the whole analysis can be reduced to one equation. In this mathematical framework we reach an even more precise and subtle understanding of Social Security and the real rate of interest. We find that Social Security likely increases the real rate of interest. The presence of land, an infinitely lived asset that pays a perpetual dividend, forces the real rate of interest to be positive, exposing the flaw in Samuelson's contention that Social Security is a giant, yet beneficial, Ponzi scheme where each generation can win by perpetually deferring a growing cost.
00:00 - Chapter 1. Introduction to the Overlapping Generation Model
12:59 - Chapter 2. Financial and General Equilibrium in Social Security
26:37 - Chapter 3. Present Value Analysis of Social Security
59:24 - Chapter 4. Real Rate of Interest and Social Security
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
This lecture continues the analysis of Social Security started at the end of the last class. We describe the creation of the system in 1938 by Franklin Roosevelt and Frances Perkins and its current financial troubles. For many democrats Social Security is the most successful government program ever devised and for many Republicans Social Security is a bankrupt program that needs to be privatized. Is there any way to reconcile the views of Democrats and Republicans? How did the system get into so much financial trouble? We will see that the mess becomes quite clear when examined with the proper present value approach. Present value analysis reveals the flaws in the three most popular analyses of Social Security, that the financial breakdown is the fault of the baby boomers, that privatization would bring young investors a better return than they anticipate getting from their social security contributions, and that privatization is impossible without compromising today's retired workers.
00:00 - Chapter 1. Introduction
03:53 - Chapter 2. The Development of the U.S. Social Security System
19:16 - Chapter 3. Economic Imbalances in Social Security
38:48 - Chapter 4. Root Causes of Income Transfer in Social Security
01:05:21 - Chapter 5. Privatization of U.S. Social Security
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
In this lecture we move from present values to dynamic present values. If interest rates evolve along the forward curve, then the present value of the remaining cash flows of any instrument will evolve in a predictable trajectory. The fastest way to compute these is by backward induction. Dynamic present values help us understand the returns of various trading strategies, and how marking-to-market can prevent some subtle abuses of the system. They explain how mortgages work, why they're called amortizing, and what is meant by the remaining balance. In the second half of the lecture we turn to an important application of present value thinking: an analysis of the troubles facing the Social Security system.
00:00 - Chapter 1. Dynamic Present Values
08:49 - Chapter 2. Marking to Market
39:53 - Chapter 3. Mortgages and Backward Induction
50:42 - Chapter 4. Remaining Balances and Amortization
54:52 - Chapter 5. Weaknesses in the U.S. Social Security System
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
Where can you find the market rates of interest (or equivalently the zero coupon bond prices) for every maturity? This lecture shows how to infer them from the prices of Treasury bonds of every maturity, first using the method of replication, and again using the principle of duality. Treasury bond prices, or at least Treasury bond yields, are published every day in major newspapers. From the zero coupon bond prices one can immediately infer the forward interest rates. Under certain conditions these forward rates can tell us a lot about how traders think the prices of Treasury bonds will evolve in the future.
00:00 - Chapter 1. Defining Yield
09:07 - Chapter 2. Assessing Market Interest Rate from Treasury Bonds
35:46 - Chapter 3. Zero Coupon Bonds and the Principle of Duality
50:31 - Chapter 4. Forward Interest Rate
01:10:05 - Chapter 5. Calculating Prices in the Future and Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
In the 1990s, Yale discovered that it was faced with a deferred maintenance problem: the university hadn't properly planned for important renovations in many buildings. A large, one-time expenditure would be needed. How should Yale have covered these expenses? This lecture begins by applying the lessons learned so far to show why Yale's initial forecast budget cuts were overly pessimistic. In the second half of the class, we turn to the problem of measuring investment performance, and examine the strengths and weaknesses of various measures of yield, including yield-to-maturity and current yield.
00:00 - Chapter 1. Yale's Budget Set
03:37 - Chapter 2. Analysis of Yale's Expenditures and Endowment
31:51 - Chapter 3. Yield to Maturity and Internal Rate of Return
51:52 - Chapter 4. Assessing Performance of Coupon Bond
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
While economists didn't have a good theory of interest until Irving Fisher came along, and didn't understand the role of collateral until even later, Shakespeare understood many of these things hundreds of years earlier. The first half of this lecture examines Shakespeare's economic insights in depth, and sees how they sometimes prefigured or even surpassed Irving Fisher's intuitions. The second half of this lecture uses the concept of present value to define and explain some of the basic financial instruments: coupon bonds, annuities, perpetuities, and mortgages.
00:00 - Chapter 1. Introduction
01:23 - Chapter 2. Contracts in Merchant of Venice
20:23 - Chapter 3. The Doubling Rule
36:07 - Chapter 4. Coupon Bonds, Annuities, and Perpetuities
54:24 - Chapter 5. Mortgage
59:15 - Chapter 6. Applications of Financial Instruments
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
Building on the general equilibrium setup solved in the last week, this lecture looks in depth at the relationships between productivity, patience, prices, allocations, and nominal and real interest rates. The solutions to three of Fisher's famous examples are given: What happens to interest rates when people become more or less patient? What happens when they expect to receive windfall riches sometime in the future? And, what happens when wealth in an economy is redistributed from the poor to the rich?
00:00 - Chapter 1. From Financial to General Equilbrium
06:44 - Chapter 2. Applying the Principle of No Arbitrage
23:50 - Chapter 3. The Fundamental Theorem of Asset Pricing
39:25 - Chapter 4. Effects of Technology in Fisher Economy
51:31 - Chapter 5. The Impatience Theory of Interest
01:06:48 - Chapter 6. Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
Philosophers and theologians have railed against interest for thousands of years. But that is because they didn't understand what causes interest. Irving Fisher built a model of financial equilibrium on top of general equilibrium (GE) by introducing time and assets into the GE model. He saw that trade between apples today and apples next year is completely analogous to trade between apples and oranges today. Similarly he saw that in a world without uncertainty, assets like stocks and bonds are significant only for the dividends they pay in the future, just like an endowment of multiple goods. With these insights Fisher was able to show that he could solve his model of financial equilibrium for interest rates, present value prices, asset prices, and allocations with precisely the same techniques we used to solve for general equilibrium. He concluded that the real rate of interest is a relative price, and just like any other relative price, is determined by market participants' preferences and endowments, an insight that runs counter to the intuitions held by philosophers throughout much of human history. His theory did not explain the nominal rate of interest or inflation, but only their ratio.
00:00 - Chapter 1. Implications of General Equilibrium
03:08 - Chapter 2. Interest Rates and Stock Prices
22:06 - Chapter 3. Defining Financial Equilibrium
33:41 - Chapter 4. Inflation and Arbitrage
43:35 - Chapter 5. Present Value Prices
57:44 - Chapter 6. Real and Nominal Interest Rates
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
Over time, economists' justifications for why free markets are a good thing have changed. In the first few classes, we saw how under some conditions, the competitive allocation maximizes the sum of agents' utilities. When it was found that this property didn't hold generally, the idea of Pareto efficiency was developed. This class reviews two proofs that equilibrium is Pareto efficient, looking at the arguments of economists Edgeworth, and Arrow-Debreu. The lecture suggests that if a broadening of the economic model invalidated the sum of utilities justification of free markets, a further broadening might invalidate the Pareto efficiency justification of unregulated markets. Finally, Professor Geanakoplos discusses how Irving Fisher introduced two crucial ingredients of finance,--time and assets--into the standard economic equilibrium model.
00:00 - Chapter 1. Is the Free Market Good? A Mathematical Perspective
11:20 - Chapter 2. The Pareto Efficiency and Equilibrium
38:42 - Chapter 3. Fundamental Theorem of Economics
46:27 - Chapter 4. Shortcomings of the Fundamental Theorem
52:39 - Chapter 5. History of Mathematical Economics
01:00:21 - Chapter 6. Elements of Financial Models
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
Our understanding of the economy will be more tangible and vivid if we can in principle explain all the economic decisions of every agent in the economy. This lecture demonstrates, with two examples, how the theory lets us calculate equilibrium prices and allocations in a simple economy, either by hand or using a computer. In future lectures we shall extend this method so as to compute equilibrium in financial economies with stocks and bonds and other financial assets.
00:00 - Chapter 1. Introduction
02:48 - Chapter 2. Welfare and Utility in Free Markets
16:52 - Chapter 3. Equilibrium amidst Consumption and Endowments
32:43 - Chapter 4. Anticipation of Prices
52:53 - Chapter 5. Log Utilities and Computer Models of Equilibrium
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
This lecture explains what an economic model is, and why it allows for counterfactual reasoning and often yields paradoxical conclusions. Typically, equilibrium is defined as the solution to a system of simultaneous equations. The most important economic model is that of supply and demand in one market, which was understood to some extent by the Ancient Greeks and even by Shakespeare. That model accurately fits the experiment from the last class, as well as many other markets, such as the Paris Bourse, online trading, the commodities pit, and a host of others. The modern theory of general economic equilibrium described in this lecture extends that model to continuous quantities and multiple commodities. It is the bedrock on which we will build the model of financial equilibrium in subsequent lectures.
00:00 - Chapter 1. Introduction
07:04 - Chapter 2. Why Model?
13:30 - Chapter 3. History of Markets
24:41 - Chapter 4. Supply and Demand and General Equilibrium
37:59 - Chapter 5. Marginal Utility
45:20 - Chapter 6. Endowments and Equilibrium
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Fall 2009.
Financial Theory (ECON 251)
This lecture gives a brief history of the young field of financial theory, which began in business schools quite separate from economics, and of my growing interest in the field and in Wall Street. A cornerstone of standard financial theory is the efficient markets hypothesis, but that has been discredited by the financial crisis of 2007-09. This lecture describes the kinds of questions standard financial theory nevertheless answers well. It also introduces the leverage cycle as a critique of standard financial theory and as an explanation of the crisis. The lecture ends with a class experiment illustrating a situation in which the efficient markets hypothesis works surprisingly well.
00:00 - Chapter 1. Course Introduction
10:16 - Chapter 2. Collateral in the Standard Theory
17:54 - Chapter 3. Leverage in Housing Prices
33:47 - Chapter 4. Examples of Finance
46:13 - Chapter 5. Why Study Finance?
50:13 - Chapter 6. Logistics
58:22 - Chapter 7. A Experiment of the Financial Market
Complete course materials are available at the Yale Online website: online.yale.edu
This course was recorded in Fall 2009.