ECON 105 Lecture Notes - Lecture 11: A Random Walk Down Wall Street, Efficient-Market Hypothesis, Isaac Newton

• School: Simon Fraser University
• Department: Economics
• Course: ECON 105
• Professor: Brian Krauth

Document Summary

Investors are rational: efficient markets hypothesis (emh, burton malkiel a random walk down wall street 1973, paul samuelson 1965, eugene fama (cid:1005)9(cid:1010)(cid:1009), (cid:1005)9(cid:1011)(cid:1004) (cid:862)there are (cid:374)o patter(cid:374)s i(cid:374) (cid:373)arket data that are e(cid:454)ploita(cid:271)le through tradi(cid:374)g(cid:863) Why do markets break down: animal spirits, (cid:862)what (cid:449)e (cid:272)o(cid:374)sider to (cid:271)e ratio(cid:374)al (cid:271)eha(cid:448)iour is that out(cid:272)o(cid:373)e of a deli(cid:272)ate balance among several distinct brain functions including emotions. Even if the market is reasonable (if not quite rational) in the aggregate, individual investors can be quite irrational need to be educated, must understand evaluations and fundamentals of company and markets you are investing in (the macro, the micro) The rational view (gather evidence) wight and evaluate evidence decide. The story view (gather evidence) explain the evidence with a story match story to possible decisions. Group biases: are 2 heads better than one, 3 ways to reduce group biases, secret ballots, de(cid:448)il"s ad(cid:448)o(cid:272)ates, respect for other members. Issac newton smart physicist but not smart investors.