YouTube Video Summary

            In the first video, the efficient market hypothesis is described by Professor Robert Shiller. The efficient market hypothesis is a theory that states that asset prices reflect all available information. Professor Shiller claims that since the market has all information, it is therefore impossible to beat the market since the market has a constant access to information and knows more about itself than people do. Professor Shiller explains that the efficient market hypothesis is true for both stock markets and corporate bond markets.

            In addition to the aforementioned theory, Professor Shiller also talks about the technical and fundamental analyses of stock. When technically analyzing stock, we look at prices via charts and assess patterns of the movements of prices. When fundamentally analyzing stock, businesses’ stock sales and earnings are assessed.

            A third topic discussed in this video by Professor Shiller is the random walk concept. This theory suggests that changes in stock prices are independent of each other and occur along the same distribution. According to the random walk concept, fundamental analysis is irrelevant due to low-quality information being used and how this type of information can be easily misinterpreted. Professor Shiller is not fully supportive of the random walk concept, however, since trends in the market do not regularly show sharp, sudden drops such as the market of 1929.

            In the next two videos, the relationships between risks and returns are explored and the CAPM theory is introduced. These videos go onto explain that when given options, most people will choose the option with the lowest risk factor. Risk is then defined as an outcome that is averse to our favorable outcome. These videos explain that risk must be diversified in order to achieve the best possible outcomes in financial situations. We also learn the two return components of stocks- stock price appreciation and dividend. These videos explain that in order to reduce risk volatility, aka a statistical measure of returns, assets must be grouped into portfolios.

            In the video on CAPM, we learn that this acronym stands for Capital Asset Pricing Model. The video utilizes the Fama-French 3 factor model to explain this concept. These theories can be written in statistical formulas and look at how value and small-cap stocks work on to outperform markets regularly and rate business manager performance.