Lecture 1 - Why Finance?

Category: Financial Theory (with John Geanakoplos)

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.

 

John Geanakoplos, Financial Theory (Yale University: Open Yale Courses), http://oyc.yale.edu
License: Creative Commons BY-NC-SA 3.0