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Principles of Finance Videos 166 videos

Principles of Finance: Unit 1, Company Formation, Structure, Inception
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How is a company... born? Can it be performed via C-section? Is there a midwife present? Do its parents get in a fight over what to name it? In thi...

Principles of Finance: Unit 1, Intro: Company Formation, Structure, and Inception: Unit Intro
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Company Formation, Structure, and Inception: Unit Intro. Sorry, Leo DiCaprio fans—we're not going to be breaking down the plot of Inception. We'r...

Principles of Finance: Unit 1, Alex, That’s Finance Potpourri for $500
67 Views

Okay, so you want to be a company financial manager. It's basically up to you to make money for the shareholders. It would also be swell if you mad...

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Principles of Finance: Unit 2, Efficient Market Theory 7 Views


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Description:

What is efficient market theory? We'd tell you here, but it might be more efficient to watch the video.

Language:
English Language

Transcript

00:02

Principles of Finance a la shmoop... efficient market theory [Person places briefcase on the floor]

00:09

Well Adam Smith was all about trusting in the market with a belief

00:14

that Mr. market is smarter than we humans are in fact a lot of poor

00:19

professors believe that the market is so efficient that it's impossible to [Person wheeling a shopping cart through a store]

00:25

legally beat it and that we shouldn't try to beat the market that is we should

00:30

just be the market in the form of investing in index funds or ETFs and

00:35

forget about actively managing money in the stock and bond markets the theory

00:41

says that you can't beat Mr. market because all the information is already

00:47

reflected in the stock prices that markets are in fact efficient and that [Chipotle store]

00:53

new information pukes out into the market place like a burp in a small room

00:57

well think you can beat the market because you have some great information [Woman on the phone and police officer appears]

01:03

well sorry champ but this theory claims that the information is already

01:07

affecting the market because others know the info too if it's legal then everyone

01:13

knows at the same time got that yeah better luck next time well there are [Woman thrown into a jail cell]

01:17

three models of the efficient market theory the weak form model, the semi

01:22

strong form model, and the strong form model well in the weak form model passed

01:27

information about a stock isn't useful at all the theory is that the current

01:32

market value is the correct and best reflection of the value of the stock all [Sears stock value graph and Mr Sears appears]

01:37

right in the semi strong form model new public information about a stock is

01:42

instantly reflected in the price so you can't gain any advantage legally by

01:47

using public information all right move it on in the strong form of a model even

01:52

insider information like illegal information is said to already be [Apple executive workers on the phone]

01:57

reflected in the market price because you know thieves tend to collude and

02:02

work together and lots of thieves set the new price on the market well not

02:06

everyone agrees with efficient market theory they may point out that insiders

02:10

can and do earn higher than average returns from trading their own company's

02:15

stock sometimes even legally and they might also point out that there's this [A pile of cash]

02:20

guy Warren Buffett has not only beaten Mr. market but has reduced him to a

02:25

bloody pulp Berkshire Hathaway here's the stock price yeah I'm pretty good huh

02:30

well if the markets really were efficient wouldn't you think that after

02:34

all these years W buff would regress to the mean and stock returns or even the

02:39

nice...yeah ain't happenin even at this massive scale literally millions of [Warren buffett in a bath of money]

02:45

would-be investors have tried to beat the market over this period of time

02:48

maybe 20 have and only one has absolutely crushed it bottom line if you can be

02:54

Michael Phelps you should swim if not well then go to law school [Michael Phelps swims past a man floating in a pool]

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