ECON 345- Final Exam Guide - Comprehensive Notes for the exam ( 70 pages long!)

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29 Mar 2018
School
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UBC
ECON 345
Final EXAM
STUDY GUIDE
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Document Summary

The purpose of this model is to blend dimensions of classical" asset pricing (rational expectations and efficient markets) with more recent. Behavioral finance models that stress observed irrationality in asset pricing. In doing so, we address the now-standard criticism that the classical model does not generate enough volatility in stock prices to match reality. The first major criticism of the early work of eugene. Fama and others, was that the classical model seemed to be explanatory for only large, established firms, not smaller ones. We work with this criticism and consider a model where there are both old" (large) firms and new" (small) firms, and show what type of excess volatility can arise: institutional setting and analyst"s forecast. A contemporary setting is presumed where analysts make forecasts of earnings per share of a given firm a quarter ahead, and then check the observed outcomes when they are realized.

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