1. Why Finance?

Financial Theory (ECON 251) 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. 00:00 – Chapter 1. Course Introduction 10:16 – Chapter 2. Collateral in the Standard Theory 17:54 – Chapter 3. Leverage in Housing Prices 33:47 – Chapter 4. Examples of Finance 46:13 – Chapter 5. Why Study Finance? 50:13 – Chapter 6. Logistics 58:22 – Chapter 7. A Experiment of the Financial Market Complete course materials are available at the Open Yale Courses website: open.yale.edu This course was recorded in Fall 2009.
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