Economics 252: Financial Markets Lecture Notes

Introduction

• Instructor: Robert Shiller
• Course Title: Financial Markets
• Target Audience: Undergraduates (basic intro econ prerequisite required)
• Objective: Understand finance as a pillar of society, focusing on resource allocation, risk management, and the role of financial markets in everyday life.

Course Structure

• Emphasizes practical applications of finance rather than heavy mathematical theory.
• Topics covered include:
  • Banking
  • Insurance
  • Securities
  • Derivatives
  • Financial crises
  • Future perspectives in finance

Course Context

• US Bias: Focus on US financial markets but includes a global perspective due to international student participation.
• Open Yale Initiative: Course filmed for online distribution to reach wider audiences.

Comparison with Other Courses

• Econ 251: Taught by Professor John Yiannakopoulos, more theoretical and mathematical focus.
  • Topics: Utilities, equilibrium, bond pricing, risk and capital asset pricing model.
• Self-Contained Course: Students do not need to take Econ 251 to understand material in this course.

Purpose of the Course

• Main Goals:
  • Prepare students for practical applications of finance in their lives.
  • Emphasize the importance of understanding financial concepts to avoid confusion in the workplace.
• Philosophical Aspect:
  • Encourage students to think about their broader purposes and responsibilities, not just monetary gain.

Historical Context of Finance

• Importance of finance in modern society and its evolution over time.
• References to the Great Depression and recent financial crises, emphasizing the need for updated financial knowledge.

Textbooks and Resources

• Main Textbook: By Frank Fabozzi and co-authors, focusing on real-world applications of finance.
• Additional Book: "Finance and the Good Society" (in progress), discussing the moral implications of finance.

Key Themes in Finance

• Moral and Purposeful Career: Finance should be viewed as a tool for societal improvement, not just wealth accumulation.
• Gospel of Wealth: Andrew Carnegie's philosophy advocating for philanthropy among the wealthy.

Notable Financial Figures and Examples

• David Swenson: Yale's Chief Investment Officer, recognized for his successful management of the university's endowment.
• Maurice Hank Greenberg: Former CEO of AIG, involved in philanthropy and finance, emphasizing moral responsibility in the field.
• Laura Cha: Vice chair of the China Securities Regulatory Commission, highlighting international perspectives in finance.

Teaching Assistants

• Oliver Bunn: Head TA from Germany.
• Elon Fuld: Studies economic applications in the pizza delivery industry.
• Bige Karaman: Focus on behavioral finance and mutual funds.
• Bin Li: Interests in leveraged asset pricing and behavioral finance.

Course Outline

1. Introduction to Risk and Financial Crises.
2. Technology and Invention in Finance.
3. Portfolio Diversification.
4. Insurance Industry Development.
5. Efficient Markets Theory.
6. Debt Markets.
7. Stock Market Functions.
8. Real Estate Market and Financial Crises.
9. Behavioral Finance.
10. Banking Regulations.
11. Options and Futures Markets.
12. Monetary Policy.
13. Investment Banking and Regulation.
14. Public and Nonprofit Finance.
15. Finding Purpose in Finance: Focus on moral obligations and societal contributions.

Conclusion

• The course is designed to empower students to apply financial concepts meaningfully and ethically in their careers and personal lives.
• Emphasis on making finance a force for good in society.