BUS 421 Lecture Notes - Lecture 3: Stock Market, Behavioral Economics, Autocorrelation
16 Dec 2017
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Behavioral finance = finance from a broader, social sci pov contradicts emt. Emt = idea that speculative a ps always incorporate best info about fundamental vales & that ps. In rational exp general equi, rational a ps may have a forecastable element that is related to the forecastability of consumption. Stock beta = measures sensitivity of stock return compared to some index: determined by the correlation of stock"s return w/per capita consumption. Consumption disc model = may show comovements @ times w/actual stock ps, but =/= work well b/c =/= justify volatility of stock ps: implies a lower bound on the volatility of the marginal rate of substitution. Predictable variation across firms in divs has been so large as to largely swamp out the effect of bubbles in indv stock ps. Level of volatility of overall stock market =/= be well-explained w/any variant of the emy.
