Financial Theory Lecture 1 TranscriptWord格式.docx
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Financial Theory Lecture 1 TranscriptWord格式.docx
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Soanyway,thecourseI'
mgoingtoteachiscalledFinancialTheory.I'
mgoingtoteachanactualclass.I'
mgoingtospendthefirsthalfoftheclasstalkingaboutthecourseandwhyyoumightbeinterestedinit,andthenI'
mgoingtostartwiththecourse.TherearenotthatmanylecturesavailableinthesemestersoI'
mnotgoingtowastethisone.Sothefirsthalfoftheclassisgoingtobeaboutwhytostudyitandthemechanicsofthecourse,andthesecondhalfofthelectureisgoingtobeactuallythefirstpartofthecourse.It'
llgiveyoumaybeanideaofwhetheryou'
llfindthecourseinterestingtoo.
SoIthinkI'
llturnthis--Iwon'
thavetoomuchPowerPointhere.SoyoushouldknowthatfinancewasnottaughtuntiltenyearsagoatYale.ItwasregardedbythedeansandtheclassicallymindedfacultyoftheartsandsciencesasavocationalsubjectnotworthyofbeingtaughttoYaleundergraduates.
Itwasgrowingmoreandmorefamous,however,intheworldandtherewasabandofbusinessschoolprofessors,FischerBlack,RobertMerton,WilliamSharpe,SteveRoss,MyronScholes,MertonMiller,whohadahugefollowinginbusinessschoolsteachingthesubject,andwhosestudentswentofftoWallStreet,andmoreorlessdominatedtheinvestmentbankingpartsofWallStreet,andbecameextremelysuccessful.Financebecamethemosthighlypaidprofession.Itbecamethemosthighlypaidfacultyintheuniversity,althoughtheywereallinbusinessschools.TherearemorephysicsPhDsworkinginfinancenowthanthereareworkinginphysics.
Sothismerrybandoffinancialtheoryprofessorsdidn'
treallybelieveinregulation.Theybelievedmarketsleftunfetteredworkedbestofall.Theybelievedinwhattheycalledefficientmarketsandtheideathatassetpricesreflectalltheavailablepossibleinformation.Soanimplicationofthatisthatifyouwanttofindoutwhetheracompany'
sdoingwellornotyoudon'
thavetotakethetroubletoreadalltheirfinancialreports,justlookattheirstockprice.Ifyouwantedtoknowwhetheracountry'
thavetostudyitsentirepoliticalsystemandcurrentevents,justlookatthegeneralstockmarketofthecountryandthat'
lltellyou.
Theybelievedthatyoucouldmakeasgoodreturnsinthemarketasalaypersonasyoucouldasanexpertbecausealltheexpertswerecompetingtotryandgetthebestpossibleprice,andsothepriceitselfreflectedalltheirknowledgeandwisdomandopinionsandsothelaypersoncouldtakeadvantageofthatbybuyingstocks.Everybodyshouldbeaninvestor,theyfelt.Amonkeythrowingdartsatadartboardwoulddoaswellasanyofthegreatestexperts.
Now,theirowntheorywasbasicallycontradictedbytheirownexperiencebecauseallofthemseemedtogooutintotheworldandinvest,andalmostallofthemmadeextraordinaryreturnsandmadeahugeamountofmoneyallofwhichmadethemevenlesspopularinthefacultyofartsandsciences.
So,acriticalpartoftheirtheorywasthatthemarketsweresoefficient,drivenbypeoplelikethemwhoarecompetingtoexploiteveryadvantage,andthereforecompeteawayeveryadvantage,andbydoingthatputalltheinformationtheyhaveintotheprices.Theimplicationofthattheoryisthatthere'
sanextraordinarilycleverwayofcomputingthevalueofmostinvestmentassets,andaboutdecidingwhenafinancialdecision'
sagoodthingtodoornot,andthatwastheheartofwhattheytaughtinthesebusinessschools,thesealgorithmsforvaluingassetsandmakingoptimalfinancialdecisions.Onestrikingthingisthatthepeopletheystudied,thebusinesspeopleandtheinvestmentbankerstheystudiedadoptedtheirlanguage.Sothishadneverhappenedinacademiabefore.Imean,anthropologistsstudyprimitivetribesanddifferentkindsofpeopleallthetimeandnotoneofthem,Iventuretosay,hasevertakenoverallthelanguageinventedbyanthropologiststobehavethemselvesintheirownsocieties,butthebusinesspeoplethattheseprofessorswerestudyingendedupusingexactlythelanguagecreatedinacademia.
Now,Yalewasverydifferent.Therewasnodividebetweeneconomistsandfinancepeople,thebusinessschoolfinancepeople.AtYalethegreatesteconomistsinYale'
shistorywereactuallyveryinterestedinfinance.Maybetheywerefinancialeconomiststobeginwith.SothegreatestYaleeconomistofthefirsthalfofthetwentiethcenturywasIrvingFisherwhoyouhearalotabout.Hewrote,possibly,thefirsteconomicsPhDatYale.TherewasnoeconomisttoteachhimsohehadtowritehisPhDwithGibbs,maybethegreatestAmericanphysicistofthetime.There'
sabuilding,asyouknow,onScienceHillnamedafterGibbs,andyou'
llhearmoreabouthisdissertationinthe1890s,buthewasamathematicaleconomist,aneconometricianbutheinventedalmostallofthiseconomicsinordertostudyfinance.
ThemostfamousYaleeconomistofthesecondhalfofthetwentiethcenturywasJamesTobin,afamousmacroeconomist,themostfamousmacroeconomist,possibly,ofthesecondhalfofthetwentiethcenturyafterKeynes,agreatKeynesian.ButhegottheNobelPrizeforworkhedidonfinanceineconomics.Financewasincrediblyinterestingtohim.SoBobShillerandIwenttoYaleandwebasicallysaidtothedeans,"
There'
salongtraditionoffinanceandeconomicshand-in-handatYale,andsoit'
snotavocationalsubject.It'
sactuallycentraltoeconomics,andcentraltounderstandingtheeconomy,andcentraltounderstandingtheglobaleconomy.Sowe'
dliketoteachittoYaleundergraduates,andwebelieveafewofthemwillactuallytakethecourse,"
andsotheyagreedtoletusdoit,andsowe'
vebeenteachingitnowforthelasttenyears.
SoasyouknowShillerhasbeenverycriticalofthebusinessefficientmarketstradition.Hefeelsthatthesefinanceprofessorsleftsomethingessentialoutofthewholestory.Whattheyleftoutwaspsychology.Theyleftouttheideaoffads,andrumors,andnarratives,whichhethinkshasasbiganeffectonpricesasthehardinformationaboutprofitsthatthebusinessschoolprofessorsimagineddroveprofits.
Imyselfhavebeenquitecriticalofthefinancialtheory.Istartedoffasastraightpuremathematicaleconomist.Tomeeconomicswasalmostabranchoflogicandphilosophythathappenedtotellyousomethingabouttheworld.SoIgotmyPhDwithKenArrow,whoyou'
llhearalotaboutveryshortly.AndIcametoYale,I'
dbeenaYaleundergraduate,IcamebacktoYaleandIjoinedtheCowlesFoundation.AndtheCowlesFoundation'
smottowasbasically,"
Canwemakeeconomicsmoremathematical?
Economics,asocialscience,oughttobeamenabletomathematicalanalysisjustlikephysicsorchemistryis,"
andpeopledidn'
tbelievethisatfirst.AndtheCowlesFoundation,whichyou'
llhearalotaboutintheselectures,ledtherevolutionineconomicstransformingitfromaverbalsubject,politicaleconomy,intoamathematicalsubject.
Well,Idecidedaround1989thatsinceIdidmathematicaleconomics,andtherewereallthesefinancepeopledoingallkindsofmathematicalthingsonWallStreetanddoingitverysuccessfully,IthoughtImightjustcheckoutwhattheyweredoing.Soitmightbefuntoseewhattheywereupto.SoIwenttoWallStreetandIjoined--mostpeopleIknew,infact,professorsIknewwenttoGoldmanSachs.Therewasafamousfinanceprofessor,whoIhadmentionedbefore,namedFischerBlackwhowasthereatthetimeandheattractedalotofpeople.Andsothatwasthetraditionalthingtodo,butIdecidedtogotoalittlerfirmcalledKidderPeabody,anditwastheseventhbiggestinvestmentbankatthetime.Andonethingledtoanother,andtheydecidedthattheywantedtoreorganizetheirresearchdepartmentinfixedincome.AndsinceIwasaprofessorthere,andIdidmathematicaleconomics,andIwasthereforthewholeyearsomebodysaid,thedirectoroftheFixedIncomeDepartmentsaid,"
Whydon'
tyoutakechargeofitandhireanewFixedIncomeResearchDepartmentforme.SoIdid,andultimatelytherewereseventy-fivepeopleinthedepartment.
AllthetimeIwasaprofessoratYale.AndafterfiveyearsKidderPeabody,eventhoughitwasahundredthirty-fiveyearsold,formedbyafamousfamily,thenameshouldsound--Peabody--familiartoyou,itcloseddownafterahundredthirty-fiveyears,fiveyearsafterIgotthere.Ihadtoinvitetheseventy-fivepeopleI'
dhiredintomyofficeandsay,"
You'
refired."
AndthenIwentnextdoortotheofficenexttomineandtheguytheresaid,"
AndsothatwasmyfirsttasteofWallStreet.AndafterthatsixofusfoundedahedgefundcalledEllingtonCapitalManagement,whichwasamortgagehedgefund,andwehad--I'
lltellyoualotaboutit.ItstartedaftertheKidderclosingasarathersmallhedgefund,butitgrewintoaverybigmortgagehedgefund,infactthebiggestmortgagehedgefundinthecountry.(Althoughrecentlywefoundoutthatpracticallyeverybodywhotradesmortgagesisbasicallyahedgefund.FannieMae,FreddieMac,they'
llallbasicallyhedgefunds,soitdoesn'
tmeananythinganymoretosaythatyou'
reabigmortgagehedgefund.)Butanyway,wealmostwentoutofbusinessin'
98asubject,astoryI'
lltellyouatgreatlength,andthenwejustsufferedthroughthisdisastrouslastyearortwo,butwe'
restillhere.Sotheseexperiences,ofcourse,havecoloredmyunderstandingofWallStreetandmyapproachtothesubject.
SoItookon,inmytheoreticalwork,financeandeconomictheoryonitsownterms.Ididn'
tthinklikeShillertointroducepsychologyintoeconomicsIjusttakeito
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