Lecture 1 - Why Finance?
recorded by: Yale University
published: March 17, 2012, recorded: October 2009, views: 13684
released under terms of: Creative Commons Attribution No Derivatives (CC-BY-ND)
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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.
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