• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
Finance Train

Finance Train

High Quality tutorials for finance, risk, data science

  • Home
  • Data Science
  • CFA® Exam
  • PRM Exam
  • Tutorials
  • Careers
  • Products
  • Login

Lecture 7 – Efficient Markets

Financial Markets

This lesson is part 7 of 21 in the course Financial Markets with Robert Shiller (Video Series)

Initially, Professor Shiller looks back at David Swensen’s guest lecture, in particular with respect to the Sharpe ratio as a performance measure for investment strategies. He emphasizes the empirical difficulty to measure the standard deviation, specifically for illiquid asset classes, and elaborates on investment strategies that manipulate the Sharpe ratio.
Subsequently, he focuses on the Efficient Markets Hypothesis. This theory states that markets efficiently incorporate all public information, which consequently renders beating the market impossible. For example, technical analysis fails to provide powerful, short-run profit opportunities.

A consequence of the Efficient Markets Hypothesis is that stock prices follow a Random Walk, as innovations to the stock price must be solely attributable to news. Professor Shiller contrasts the behavior of a Random Walk with that of a First-Order Autoregressive Process, and concludes that the latter statistical process matches the reality of the stock market more closely. This conclusion, combined with the evidence that investment managers like David Swensen are capable of consistently outperforming the market leads Professor Shiller to the conclusion that the Efficient Markets Hypothesis is a half-truth.

Additional Resources:

Multiple-Choice Quiz (with answer key) [PDF]

Lehrer, “The Truth Wears Off: Is There Something Wrong with the Scientific Method?” The New Yorker

Previous Lesson

‹ Barron’s Criticism, Determinants of Investment Return

Next Lesson

Lecture 8 – Theory of Debt, Its Proper Role, Leverage Cycles ›

Join Our Facebook Group - Finance, Risk and Data Science

Posts You May Like

How to Improve your Financial Health

CFA® Exam Overview and Guidelines (Updated for 2021)

Changing Themes (Look and Feel) in ggplot2 in R

Coordinates in ggplot2 in R

Facets for ggplot2 Charts in R (Faceting Layer)

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Primary Sidebar

In this Course

  • Financial Markets: Course Introduction
  • Risk and Financial Crises
  • Technology and Invention in Finance
  • Portfolio Diversification and Supporting Financial Institutions
  • Insurance, the Archetypal Risk Management Institution
  • Barron’s Criticism, Determinants of Investment Return
  • Lecture 7 – Efficient Markets
  • Lecture 8 – Theory of Debt, Its Proper Role, Leverage Cycles
  • Lecture 9 – Corporate Stocks
  • Lecture 10 – Real Estate Finance
  • Lecture 11 – Behavioral Finance
  • Lecture 12 – Misbehavior, Crises, Regulation and Self Regulation
  • Lecture 13 – Overview of Banks
  • Lecture 14 – A Brief History of AIG with Maurice “Hank” Greenberg
  • Lecture 15 – Forward and Futures Markets
  • Lecture 16 – Banking and Regulations in China with Laura Cha
  • Lecture 17 – Options Markets
  • Lecture 18 – Monetary Policy
  • Lecture 19 – Overview of Investment Banking
  • Lecture 20 – Professional Money Managers and Their Influence
  • Lecture 21 – Exchanges, Brokers, Dealers, Clearinghouses

Latest Tutorials

    • Data Visualization with R
    • Derivatives with R
    • Machine Learning in Finance Using Python
    • Credit Risk Modelling in R
    • Quantitative Trading Strategies in R
    • Financial Time Series Analysis in R
    • VaR Mapping
    • Option Valuation
    • Financial Reporting Standards
    • Fraud
Facebook Group

Membership

Unlock full access to Finance Train and see the entire library of member-only content and resources.

Subscribe

Footer

Recent Posts

  • How to Improve your Financial Health
  • CFA® Exam Overview and Guidelines (Updated for 2021)
  • Changing Themes (Look and Feel) in ggplot2 in R
  • Coordinates in ggplot2 in R
  • Facets for ggplot2 Charts in R (Faceting Layer)

Products

  • Level I Authority for CFA® Exam
  • CFA Level I Practice Questions
  • CFA Level I Mock Exam
  • Level II Question Bank for CFA® Exam
  • PRM Exam 1 Practice Question Bank
  • All Products

Quick Links

  • Privacy Policy
  • Contact Us

CFA Institute does not endorse, promote or warrant the accuracy or quality of Finance Train. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.

Copyright © 2021 Finance Train. All rights reserved.

  • About Us
  • Privacy Policy
  • Contact Us