ECON 252: Financial Markets
Lecture 04 - Portfolio Diversification and Supporting Financial Institutions. In this lecture, Professor Shiller introduces mean-variance portfolio analysis, as originally outlined by Harry Markowitz, and the capital asset pricing model (CAPM) that has been the cornerstone of modern financial theory. Professor Shiller commences with the history of the first publicly traded company, the United East India Company, founded in 1602. Incorporating also the more recent history of stock markets all over the world, he elaborates on the puzzling size of the equity premium and the very high historical return of stock market investments. After introducing the notion of an Efficient Portfolio Frontier, he covers the concept of the Tangency Portfolio, which leads him to the Mutual Fund Theorem. Finally, the consideration of equilibrium in the stock market leads him to the Capital Asset Pricing Model, which emphasizes market risk as the determinant of a stock's return. (from oyc.yale.edu)
| Lecture 04 - Portfolio Diversification and Supporting Financial Institutions |
| Time | Lecture Chapters |
| [00:00:00] | 1. Introduction |
| [00:01:14] | 2. United East India Company and Amsterdam Stock Exchange |
| [00:16:19] | 3. The Equity Premium Puzzle |
| [00:21:09] | 4. Harry Markowitz and the Origins of Portfolio Analysis |
| [00:29:41] | 5. Leverage and the Trade-Off between Risk and Return |
| [00:39:55] | 6. Efficient Portfolio Frontiers |
| [01:00:21] | 7. Tangency Portfolio and Mutual Fund Theorem |
| [01:09:20] | 8. Capital Asset Pricing Model (CAPM) |
| References |
| Lecture 4 - Portfolio Diversification and Supporting Financial Institutions Instructor: Professor Robert J. Shiller. Resources: Lecture Slides [PDF]; Problem Set 2 [PDF]. Transcript [html]. Audio [mp3]. Download Video [mov]. |
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