Lecture 6 - Efficient Markets vs. Excess Volatility

author: Robert J. Shiller, Department of Economics, Yale University
recorded by: Yale University
published: Oct. 7, 2009,   recorded: March 2008,   views: 5119
released under terms of: Creative Commons Attribution No Derivatives (CC-BY-ND)

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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.

Reading assignment:

Robert Shiller, Irrational Exuberance, chapters 10 and 11
David Swensen, Pioneering Portfolio Management, chapter 8
Jeremy Siegel, Stocks for the Long Run, chapters 3, 4, 5, 16, 17 and 18


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Comment1 guest, February 6, 2010 at 12:35 p.m.:

is it just me or is this lecture not working? i mean i can't get it to play...

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