Quick review of interest rates & monetary policy (Powell’s cuts, next FOMC).
→ Monetary policy affects valuation, bonds, and discount rates.
Reminder: fiscal policy = government spending & taxes.
→ Both together shape the macro framework for financial markets.
Alfred Nobel’s legacy → Economics prize given by Sweden’s Riksbank.
Notable laureates:
Markowitz (1990) – Portfolio Theory.
Sharpe (CAPM) – Risk–return model.
Fama (2013) – Efficient Market Hypothesis (EMH).
Shiller (2013) – Behavioral Finance.
Kahneman (2002) – Psychology of decision-making (“Thinking, Fast and Slow”).
Yunus (2006) – Microcredit & Peace Prize: finance as a tool for inclusion.
👉 Message: Economic science evolved from pure math → behavioral & ethical dimensions.
“Are you perfect?” → Irrelevant question.
What matters: what happens when you make a mistake?
→ You learn → Markets learn too.
A market behaves like a living system that corrects errors (inefficiencies).
Inefficiency detected → Arbitrage.
Arbitrage profit = correction of mistake.
Over time → Markets tend toward efficiency.
A market is efficient when prices fully reflect all available information.
Saying “markets are efficient” = saying “no arbitrage opportunities exist.”
Arbitrage exists temporarily.
Because arbitrage exists → markets become efficient.
→ “There is no arbitrage because there is arbitrage.”
| Form | Information Reflected | Example of Strategy | Works? | Legal? |
|---|---|---|---|---|
| Weak | Historical prices | Technical analysis | ❌ if market efficient | ✅ |
| Semi-Strong | Public info (financial statements, news) | Fundamental / Value investing | ❌ if market efficient | ✅ |
| Strong | Public + private info | Insider trading | ❌ if market efficient | ❌ illegal |
Based only on past prices.
Example: Technical Analysis, Candlestick patterns.
If it “worked,” everyone would use it → prices adjust → inefficiency disappears.
→ Markets tend to weak-form efficiency.
Uses public accounting & financial data (balance sheets, P&L, etc.).
Fundamental analysis = estimate intrinsic value → compare with market price.
Value investing (e.g. Warren Buffett): finds mispriced stocks.
Incorporates private information (insiders).
Insider trading = using non-public info to trade.
Illegal under SEC rules; enforcement maintains fairness.
| Type | Focus | Goal | Example |
|---|---|---|---|
| Technical | Price patterns, momentum | Predict trends | Candlestick “Head & Shoulders” |
| Fundamental | Company financials | Estimate intrinsic value | Value investing (Buffett) |
If markets are efficient:
Weak form → technical analysis useless.
Semi-strong form → fundamental analysis useless.
Strong form → no insider advantage possible.
Stock prices move randomly because all available information is already reflected.
New information → unpredictable → random.
Trying to forecast systematically → no consistent outperformance.
CAPM assumes markets are efficient → returns reflect only systematic risk (β).
Empirically: anomalies appear (small firms, calendar effects, momentum…).
Some anomalies fade after discovery → evidence of adaptive efficiency.
CAPM: 1 beta (market risk).
Fama–French (1993): added size (SMB) + value (HML) → 3 factors.
Later: 5-factor and multi-beta models (smart beta strategies).
→ Real markets: risk has many dimensions, not just β.
January Effect – high December returns, bonuses, then correction.
Name Effect – firms with “U.S.” in name overperformed.
Size Effect – small firms had higher returns.
Growth vs. Value Effect – persistent patterns.
But anomalies often vanish once published → “markets learn.”
Exam-style question example:
“When technical analysis does not work → market is efficient in:
A) Weak form, B) Semi-strong, C) Strong, D) All of the above.”
✅ Answer: D.
If it fails for weak, it fails for all stronger forms.
Midterm Scope:
EMH + CAPM connection.
Relation between info, arbitrage, and efficiency.
Practice question patterns like above.
“We are continuously learning — markets too.”
Mistakes → arbitrage → efficiency → new mistakes → new learning.
That’s the cycle of both people and markets.
Intro: From Powell’s rate cuts to macro-financial interdependence.
Historical Overview: Nobel Prizes → intellectual evolution (Markowitz → Kahneman).
Conceptual Pivot:
Learning and human imperfection → analogy for markets.
Arbitrage as the market’s “learning mechanism.”
Efficient Market Hypothesis:
Defined three forms.
Linked each to legal/illegal strategies.
Highlighted arbitrage paradox (“no arbitrage because of arbitrage”).
Behavioral Dimension: Introduced Shiller, Kahneman, and limits of rationality.
Bridge to Fama–French & multi-beta models: From one β to many.
Philosophical Closure: CAPM is a simplification — “If you only have a hammer, you see nails.”
Strong engagement: students laughed, asked about Nancy Pelosi ETF, Musk, Buffett.
Curiosity spike: technical analysis patterns triggered interest and skepticism.
Intellectual link between Nobel timeline and current macro policy landed well.
✅ Clear thread: From math → psychology → ethics.
✅ Analogies (“mistakes,” “hammer”) reinforced the idea of model simplification.
✅ Real-life examples (Pelosi ETF, insider cases) contextualized theory.
⚠️ Slight overload of information — pace was fast but stimulating.
Students now understand:
Market efficiency as dynamic, not absolute.
The 3 forms of EMH and their relation to trading strategies.
Arbitrage as the engine of efficiency.
The link between CAPM, anomalies, and model evolution (Fama–French).
That finance evolved from equations → behavior → systems thinking.
Wednesday: review Sample Midterm 1 & 2.
Friday: Midterm Exam.
After midterm: start Arbitrage Pricing Theory (APT).
Recommended reading: “Efficient Capital Markets: A Review of Theory and Empirical Work” (Fama, 1970).
Would you like me to prepare this session as before —
✅ one student PDF (handout) and ✅ one MD file (notes + report for your archive)?
8 de octubre de 2025, 3:03p.m.
OK. Any questions regarding problem set 3?
Do you want me to go to any one of the exercises?
Forums 3, lower portfolios, calculate betas. Important things these questions were when asked about last capital holds.
That’s Kevin Hall. Is this portfolio efficient where you should calculate some pressure? Do you know which questions I’m talking about? OK, let me.
One hand.
Here. Hi. Hello.
Who’s missing? Yeah, it’s missing. QEC. Yeah, today. I think nobody else. Oh, Pedra will go probably.
Next Monday we didn’t have class. You know it, no? I don’t know why, but there is no class in NYU on Monday. This is, I think I know why. I mean this Monday there is class.
There is class in Spain. There is no holiday, but Sunday is the Spanish National Day. I don’t know if you will be in Madrid some on Sunday. You will be in Madrid.
Those that will be married will see or can see a military. How do you call it? Military parade? Yes, parade, military parade and personally I won’t see the military portrayal.
But there will be place on this case. Probably during these days you have seen the place preparing the national. OK, let me serve with you.
Slides and while you finance here, this is yours.
This works here.
OK.
But this is not.
OK.
Didn’t you drink everything? No, no, it’s like half of it or half. Oh, OK.
No, no. I mean, personally, it’s one of my favorite moments of the day, so you don’t need to feel sorry, yes.
So is the is. I mean, a lot of things have happened. I have had Yorban. Yorban is one student that I have in.
Two days, three years ago, there was a before and after in my life, after having had your banana, you drinking water is the first time that happened also. I mean, I have had before drinking water in my class before.
I’m not that people, so I really appreciate it and I feel, I feel really thankful for that. OK, Mark, OK, we are done.
We are done with all things, all numerical exercises in about the meter. Yep, we are done.
With all, what are we going to talk about today? We are going to talk about the efficient market.
Hypothesis. This the PCM market hypothesis is sure about market the PCs.
Are Americans efficient?
Have you ever target the agency?
What does market efficiency mean?
New one when I’ll be in the that book.
What is that means different? I think you’re like a perfectly efficient market. Everyone has the same amount of information. That’s definitely not true. Marks typically information is a metric.
And also in perfectly efficient market, supply and demand, but it’s also not really the case. Yeah, OK, I think I’m perfect. I think I’m.
That’s not really real.
I like because you were on the point. I get in silence in order to make you continue talking and.
And you continue talking about project. Your explanation has been perfect. Market efficiency. Market efficiency has to do with you say no information. Market efficiency has to do with information.
Finance has to do with information and then all things you say later if everyone has information, if information flows, but the question is before going into information that.
We will go into information. Yeah, before that, our markets sufficient.
Without knowing what is market efficiency, asking if a market is efficient is a hard question, yes, and normally you ask this question to students or people.
The big answer is going to be now, no. And what I want to transmit you today is that market efficiency.
That’s not half.
To do with that, yes or not answer. Yes, it’s a dynamic hypothesis. Let me ask you another question.
I think I asked you this question at the beginning of the course. Are you perfect?
Are you at any such there?
No, no, no, no. Are you perfect? Are you a disaster? Again, this is not a correct question.
The correct question should be what happens when you make a mistake. For example, what happened when you make a mistake normally?
Drama. You kill yourself. Failure. No, no, no, no. What happens when you make a mistake normally?
You learn from it and you become better. So mistakes, making mistakes is a path or becoming better. What could be perfectly a person who does not make?
Instead, does it exist?
No, because we continue. I mean, yeah, one person that will all make a mistake is a dead person. Yes, you die. Once you die, you will make more mistakes.
Everything will be perfect. This supply and demand law will be perfect. No movement. But before that moment we are making mistakes. We are continue making mistakes and we are learning. Yep.
My I have one aunt. He passed away six months ago because of cancer.
Last I have, I have. I was lucky because last day I was with him. He was in peace.
And he told me that moment that he was still learning and teaching. He was teaching me.
In this case, not how to die, how to leave.
And I was so thankful to him on that moment. And personally, when this moment will come to me, I would like to be with all people that I love and transmit him, transmit them.
All things that he taught me on that moment is what I mean. What I am trying to transmit is that we are continuously learning. There is not one moment where we are out of learning.
Talking about markets, it’s the same. It’s the same. Let me explain. OK, this goes on one hand. Let me go to another side before. So we have, yes, right here.
Information, information and also here.
No, yes.
Information and learning. Let me look for oh, what is?
No one is from Sweden. Swiss. No, Sweden. Sweden. Sweden. Swed. No, Switzerland. The ones that make chocolate. Switzerland. Switzerland. The others. Belgium. No, no, it’s so this. No. Norway. No.
Sweden, Sweden. No one is from Sweden, from Sweden, Swedish, from Swedish. What is going to happen next Monday that has to do with Swedish?
Next Monday we will have class. We will have enough 12 or less has to do with risk banking.
Please banking. Please banking. Have you heard about please banking? I don’t know how to say.
Risbanking. Risbanking is the Swede, Sweden, Swedish Central Bank.
OK, no, I’m not gonna go too far from from here. Economic Nobel Prize is over here.
Almost all Nobel Prizes are given by Nobel Foundation, Alfred Nobel Dynamic and because of that almost all Nobel Prizes. Why I’m saying almost because the economics.
Nobel Prize is been given by Greece Bank by the Swedish Central Bank.
And there is another Nobel Prize that is not being given by Swiss that are is being given by Norway that are they nervous Norway. They have found petrol and they have made a lot of money because of petrol, yes.
Which Nobel Prize is being given by Norway?
Trump has said Trump, Donald Trump has said that probably he will receive this. Sorry for saying this, but Trump, I promise he has said that.
Which Nobel Prize I’m talking about? Peace. Peace. Nobel Prize is been given by Norway. I mean, I care about peace, but I don’t care about too much about what Trump said with all respect to Trump this Monday.
Chris Banking is gonna say who is going to receive the Nobel Prize. Yes. OK, let me.
Here, no better.
But I stay going on mix.
All prices in economics. I absolutely love this story. I Where are you guys? Here you are.
Let me year 2030 one three, yes, this is last year that was given to.
People study. Oh, I love these guys and I think one of this is who are you?
They study about demography. They study about why nations that the book which you guys wrote together is why nations fail.
And one of the adversity of white nations fail.
Is because of that. How is U.S. government now? Stop. How is France government now? You see that this novel given last year match with nowadays war.
Today’s world.
Claudia Goldin has to do with history, history and gender. He studied through history why there has been a gender inequality.
He’s not talking about ideology. He used to make a lot of studies and she said something that is has has to do with common sense. Women through all life has been.
Has been treating up worse way than men and she received noble over 90 and Diamond and Ivy has to do. This has to do with.
Banking crisis. Bernanke was the Fed chair in 2008 and he studied a lot regarding Bernanke. We will talk. I don’t know if we have already talked, but we will talk about interest rates. Bernanke the 2008 crisis.
Did I become another big depression?
Like 1929 times to Bernard. Are you following me more or less?
Then David Carp and just they have done what is called natural experiments, writers and all they studied writers this one.
I don’t remember this one. Sorry, 2020 to flow. This has to do with poverty.
And let me go to 2030, yes.
This Nobel Prize has been given to Fama, Siller and Hansen. Hansen is just in the middle. He’s not like as well. Fama. We are going to talk about him today. Fama has to do with the ECA market hypothesis and Siller has to do with behavioural finance. Have you heard?
Refinance.
Chiller wrote a lot about bubbles. Bubbles all of us get on fire, we start buying, the price goes up and then the bubble explode and there is a big crisis, a big disaster. Yes, this has to do with behavioural finance.
Make sense?
OK, we are going to talk about Eugene Fana and then let me go to 2001. I think it’s 2001.
2001 No 2019 Ninety for 200190 oh what is?
What is he 2001? No. Oh, yes, 2002.
Let me go to year 2002, yes.
Kaneman, there is a before and after year 2001 Nobel Prizes. Kaneman.
He’s a psychologist and he wrote. I don’t remember exactly the title of the book, but he wrote something like things slow, think fast or think fast, things slow, and it has to do off taking decisions whole with him.
And most of the time we go in an automatic way. Yes, why there is a before and after this Nobel Prize? Because all the things you have studied.
Received Novel by the one of the portfolio theory in 1973. I would I don’t certainly know, but we can find him. Then the campaign father Sharps received the novel. Don’t remember exactly what, but before, yes.
Most of Nobel Prizes even before 2002, yes, were given to people that thinks that they were behaving in a mathematical way.
I think that you are the same. All of you, all of you have same expectations. Did you remember when we were talking about Kapem hypothesis? Kapem hypothesis. I drop here a person.
Saying, oh, we are taking a model, we are summarizing reality. Yes, all this way of things that we can.
Transform all of you into ads with models as to do with.
I cannot be that this is still being studied in all universities all over the world, but has to do with an old way of it. Make sense.
So here we are not going to study. We are not gonna study.
Anything like probably in your whole life, probably one of these guys will beat you.
But you are not gonna study at the university. Things being said that by all these guys. Why? Because he’s too new, he’s too modern and in the textbooks you cannot find this.
Probably a lot of things that I’m saying has to do with behavioural finance has to do. Do you understand what I mean? No. What I teach things that comes before year 2002, for example here.
Here, Merton and Myron.
Has to do with the Black and Souls model. We will study Black and Souls modeling.
6-7 lessons Yes, blackout source has to do with options. How to get the value of an option?
Then.
Mass has to do with game theory. I’m looking for Markovic. Luke 1990 Markovic.
Pioneer working theory of financial economics, Portfolio theory.
All things we have been working has to do with Markovic model and then after Markovic, oh and SAR. SAR is the one of the from the capital. Yes, this Nobel Prize has been given to portfolio theory that we have already started.
This is not only this.
Let me all see all these things has to do with maths. Let me look for Muhammad Yunus. Muhammad Yunus Nobel Prize.
I want just to say one thing regarding Mohamed Yunus.
Mohammad Yunus received Nobel Prize in year 2006. Yes, he was the founder of Grameen Bank. Grameen Bank was responsible for getting micro credits. What is a micro credit? It’s a small, small credit given to how many.
And all these microbes took people from port.
He used to give small credits and thanks to his credit, the family can, for example, buy chickens, feed chickens, they got eggs, they get, they pay back the loan. You understand what I’m saying? No.
But I want to transmit you by showing you Mohammad Yunus. Which Nobel Prize did he receive?
If the war, if the war wouldn’t, wouldn’t be ill. Yes, if they were, if they were, if the war.
When it be there, you would have received Economics Nobel Prize, but Mohammad Yunus in year 2006, he received the peace.
Nobel Prize. You understand what I’m saying?
That poverty in year 2006 has to do with peace, not with economics.
Now there is a change. Now we care about taking care. Now we care about poverty. There has been a pandemic. There should have been a change generation. Do you understand the point? No. OK.
All this story regarding Nobel prices is absolutely important.
Why? Because the war is changing. The war has already changed and understanding it changed.
Important. OK, this goes on one hand. Who will receive the Nobel Prize? I don’t know. Let me go to Eugene Faber and next step.
Let me see.
You know, let me see.
I said cookies. I’m looking for the paper.
And looking for this paper will be.
This is all right. This is the one. Perfect. So happy.
Ugifa is a professor from Chicago University.
This is a market.
I said cookies. Here you’ve got the article. Let me.
OK.
I would like let me just point this.
Oh, no, sorry, a minute. Who can I? I feel stupid.
OK, again, I’m trying.
I want to take a picture.
Oh, sorry.
I want to take a picture.
I want this paragraph here. OK, perfect.
I want to take a picture where I can take this thing here.
Perfect. And then.
It’s here.
OK.
OK.
OK.
OK. What are we going to talk about today? Market efficiency, yes.
So, so simple to explain and to understand.
Just one moment, Jeffrey, Keishia in. I’m going to the borders. This I’m going to the borders and then I will go.
When a market is efficiency is efficient. Sorry, when a market is efficient, when everybody has the same information, if everyone has the same information.
We can consider a market as efficient.
Do all of us have same information?
Regarding what is market efficiency and when a market is considered efficient, now all of us have saving for it.
It’s that.
Yeah.
When will Jack when Jack will have this information next Wednesday or before if he send me an e-mail or I will send him an e-mail and telling him what is I get a visit. Make sense.
All of you have understood what is market efficiency.
Then there are two ideas, two more ideas. First idea is what is information.
They’re going to get what is information.
What is information and then?
What happens?
What happens when there is a lack of information? What happens when you, Rob knows something, when you know something that the rest of the people?
Well, no. Make sense.
Do I make mistakes? So I’m writing something. One of you they take that I have made a mistake.
Yep, one of you detective. And what you should do if you see me making a mistake, what you should do?
Correct. You should correct the inefficiency.
Once you detect inefficiency, you correct it and you get two things at the same time. You get two things at the same time. On one hand, you make the market better. You make the class better. Why? Because you are sharing all this information, yes.
But what is the second thing you get a profit?
Oh, you have correct me. Thanks. You will get extra.
Why? Because you have correctly, you have made the class better. Make sense.
So two ideas. First idea is what is this thing regarding information and a second idea is second idea is what happens when there is a locker of information.
In finance, correcting and inefficiency is being called. Anyone knows what is the name?
Admitras. Have you heard of Admitras?
What is her address?
Making money through it thanks to inefficiencies if you detect an inefficiency.
What you will do arbitrage. You will make money and at the same time you are making money by correcting the inefficiency. What are you doing? You are making the market better.
After the midterm, after the midterm, the name of the first class we are going to have after after the midterm will be arbitrage.
Not today, but yeah, today we will talk about a little about that. What is the main idea you should understand?
Saying please, this idea will repeat several times and this idea is absolutely important and it’s not an idea that just by listening to the sentence or the phrase I’m going to say you will fully understand. Understanding this idea will require the whole class. Today’s class, yes.
Saying that the market is efficient is the same as saying that there are no arbitrage opportunities. Make sense.
Have you understood what I have said? Market efficiency is the same as saying that no arbitrage is possible, but careful because.
That’s how it exists.
Are there architecture opportunities in the world? Yes, there are. There are tons, but thanks to architecture that is.
That’s of people with arbitrage. Markets tends to efficiency and because markets tends to efficiency, all these arbitrage opportunities disappear. So there is no arbitrage because there is arbitrage.
You understand what I’m saying? We will go bigger and we will see this idea from different perspectives. Yes, but what I want you to understand is that thanks to arbitrage, there is no arbitrage.
Thanks to Arbitrage, we can say that markets fail to efficiency.
Efficient market hypothesis is the same as saying that there is no arbitrance. Are markets efficient? No. Are market an efficiency? Yes, but this is not the correct question. Which one is the correct question? Or the question is?
What happens when there is an inefficiency? And what happens is arbitrage, sometimes to arbitrage. The markets tend to efficiency. Make sense?
OK, what is information? Let’s see, let me let me read what I have said with you. The primary role of the capital market is allocation of ownership of the economy’s capital stock.
Make sense? There are savings, there are financial needs and.
Capital market allocate earnings, sorry, allocate, sorry needs with savings. No, there are people that have savings.
Location of owners in the economy is capital stock. In general terms, the idea is a market.
In which prices provide accurate signals for resource allocation, yeah.
Thanks to the price, we can see if something is cheap is expensive and if something is cheap, what are you are going to do with this thing? If you find it cheap, you’re going to buy and you buy something that is cheap. A lot of people start buying something that is cheap. What will happen? The price will increase.
And the same thing, if something’s expensive, you will start selling it in case you work. This is articles and we will talk about articles, but price is something that has to do with information. Makes sense.
That is a market that investor can choose through here, please a market.
In which prices always fully reflect available information is called efficient agents.
Yeah.
You look at prices and what this mean that price reflect all information available in the system.
So there is nothing new regarding information that could make prices change. So everyone has same information.
Yes.
This is marketed measures and now the question is.
What is information? Yes.
Let me.
Start with a personal.
Really, really, really simple. What is information? Think about portfolio theory. Information has to do with historical.
Prices, yes.
Sorry, got prices.
And.
Let me say that this is a.
Hey.
Let me say that this is a week form of the market that we can this this is a week form.
Historical prices. Let me ask you one question. Can we predict the future? Can we predict future by looking historical prices?
You understand what I mean by historical prices and we predict the future by looking historical prices.
Yes or not, can we?
Emily.
Do you know what are Japanese scandals?
Candlesticks. Japanese candlesticks. Anyone knows it?
Anyone knows what are Japanese candlesticks? You don’t know it. How do you feel with this lack of knowledge?
Do you feel?
Do you feel weak?
You feel I have the knowledge, so I have information you don’t have. Do you feel this power regarding knowledge? Japanese candle sticks? Let me show you what is a Japanese candle stick.
A Japanese candle stick.
Yeah, I like this one.
For e-mail.
Take this out.
Where is a Japanese Candle stick so simple?
Each one represent one day, one day. If it is green, it means that the stock has gone up. If it is red, it means the stock has gone down, yes.
And what you can see if it is green, this is the opening price opening and this is the close. If it is red opening and and and close, yes and the minimum and maximum price of it today, the minimum and maximum.
Now all of you know when it’s a Japanese Catholic.
Let me show you things.
Double top, head and shoulders, rising gates, failing wets, inverted head and shoulders, double bottom.
When talking about look in historical places and trying to create the future, you will see the cut of the there are fancy names, fancy names that oh, do you know what are Japanese scandal stick? Do you want to have this secret?
Knowledge, pay me $100. I will send you the course and you will immediately reach after paying me $100. You know what I’m talking about? A lot of people is saying, oh, I have magical things. Yep.
That’s might exist.
Yes, he’s bad in a different sense. In a life, he’s madness. Magic has nothing to do with whatever.
Can we predict what is this?
Have you see all these charts, all these trading things? You can Google, you can look for YouTube videos regarding technical analysis. You will find tons of videos of people trying to teach how to be complex.
Yeah, technical analysis, trend analysis, trending. I mean, let me go step by step because I am giving you a lot of information.
Technical analysis.
For example here.
Or this one? What can you see? For example, these days the price have moved little, but there has been high volatility.
By looking at Japanese scandal, you can see not only.
Price movement and also volatility, yes, and also you can see trends.
Here there is a trend. Here is a trend. Then there is also a trend. There is a floor, a top, yes.
What I’m talking about, what is information? I’m talking about the weak form of the efficient market hypothesis that has to do just with historical tests, yeah.
Main idea is a market efficient in the wood form.
Depends. But if the market is efficient in the weak form, this means that technical analysis will not work. You cannot predict the future by.
Doing technical analysis. Technical analysis works sometimes, yes, sometimes no. And thanks the times technical analysis works, markets tend to efficiency in the.
We for do you understand what I said?
So if it doesn’t, if it doesn’t work, what’s the point? If it doesn’t work, all these people that are selling, sending that are selling all these courses.
Are scammers.
I’m not saying that they are scouters, but careful because if I know how to become rich, I will not teach. I will be rich.
But the point is not this work a lot of times and you can see trends or even if you are talking about Bitcoin or if you are talking about things that receive a lot of publicity, trends exist.
But thanks to technical analysis, markets tend to efficiency. Are there arbitrage opportunities when talking about technical analysis? Yes, there are. But because there are markets tends to efficiency because there are a lot of people trying to data.
Get that a get another tax by using make sense.
OK.
Historical places is public information.
Is there more public information apart from historical places?
Yes, no, there are.
Use and also what information can you have from a company?
Very good prices, but also what can you have?
Balance sheet, all public information regarding accounting. Yes. So let me move into the this was the week form.
They semi strong. Oh, semi strong for.
Not just historical prices, but also.
Public.
Information.
Yeah.
You take books value, you compare books value with market value. If you find by looking books that the company is cheap, what you will do?
Goodbye.
But you think the price will go up? Make sense?
How is called this type of analysis? How is called this type of investing?
This type of analysis is called fundamental analysis. Have you ever had a fundamental analysis?
This type of fundamental analysis is just what I have said. There is one price in the market and you analyze books by analyzing. We will see, we will look after the meter. You will see the future dividends, you discount the dividends, you calculate the price based on future dividends.
You get the destination of price and you see this match with what is in the market. Make sense.
Yes.
This is called fundamental analysis. Always called this type of investing. This type of investing is called value investing. Have you heard about value investing?
If I say value investing, which name all of you should think about?
Which state?
Have you heard about Oklahoma? I say Oklahoma, who you would think about?
From Oklahoma.
Oh, sorry.
I mean, in order to see a map, I’m talking about water buffet, not just water buffet. So longer as a way, I think one year ago or less than a year ago, water buffet. And the question is thinking about efficient market equities, yes.
The question is simple. It’s what a buffet reach.
Yes.
Sold by the university world.
And it’s easy to become rich as water buffet.
Obviously now what is the idea? Are market efficient in the semi strong form?
Warren Buffett at the same time demonstrate that markets are not efficient, but Warren Buffett at the same time has helped market efficient a lot. Why? Because Warren Buffett analyze companies.
I’m when when Buffett buys.
One company what the price is going is going immediately after he enters into a company, price goes up. Why? Because he’s buying things that are undervalued, but the market wants what a buffet comes in.
People stop buying also. Make sense.
I’m not sufficient.
Thanks to what I nothing market tennis to efficiency in this in a strong call. Make sense.
OK, all part information.
What else?
What is missing?
What type of information is missing?
But it’s the strong form of market efficiency.
What is this?
What is information? I have said historical places. I have said all family information.
What is? What type of information?
public information what I’m missing.
Private information. How do we call people that trade with private information?
Insiders, yes.
And here we should change the tip.
The strong private, yes, and here we should take that.
Is technical analysis legal?
Yes.
Is what a baffet and criminal? Of course not. Is value investing legal? Yes.
Inside their craning is legal. No, it’s a crime. Here we should think in a different way.
Is there people trading with inciting with inciting information? That would be yes, but thanks to the EC market hypothesis, what SEC could do?
Take them to jail. You understand what I’m saying? Not afraid of the US Congress.
And three years ago.
Not even if you are called a mask.
But what they don’t must do is manipulated.
It happened the same as me. I bought it to an ETF. I bought it to an ETF that followed the office and it was really, really helpful.
The can you repeat that? I bought an ETF. There’s one ETF called Nancy, so it’s NANC. And I didn’t have a Nancy. No, it’s an ETF. Yeah, I know what it’s an ETF, but Nancy replicates what? Nancy is the.
The former Speaker of the House in Nancy Pelosi. Wow, she’s a please share information regarding UCPF. So basically, like her and her husband have been investing in like various stocks and like once, once before they passed legislation, they bought these stocks.
And back when the legislation happens, then stocks go up. But we did the first people to know about this, but this is legal.
Yeah, but I mean politicians in the US. I I know, I know, I know. But killing someone is illegal. Other thing is that I mean killing someone.
The thing is that you do something illegal and you don’t go to jail because we’re a Congressman.
Can you say information regarding Nancy and VCPF? Because yes, in order in order to learn, but the idea is so simple.
This is time. Yes, this is one day.
And this is what you were saying, Jeffrey. No news. Once the piece of news is public, imagine that there are good news. Yes, once the piece of news is public, this is the kind of question you will find in the midterm regarding marketing.
Efficient. This is the kind of question you are not going to find more questions apart from this kind of question. Yes, if a market is efficient in the strong way.
Once piece of new is public, after you will see a reaction.
Could it be an over reaction? Yes. Could it happen? Absolutely. Yes. Make sense.
This happens when the market is efficient in the strong way.
What if there are insiders?
Movement will happen before what the SEC will do. Look who has made these votes here and by looking who has vote, what SEC will discover.
Oh, he’s the neighbor of the CEO of the company. He lives next to his second his his relative, yes.
And SEC can prosecute these guys. When are you have both? Why you have both? You have both. So you won’t go today because you are training with inside the information. You understand what I mean here.
If markets are not efficient, SEC could look for the buyers.
except if you are a
Love is life.
Any questions? Make sense?
Let me come back here.
Uh, here where we were here.
OK.
A market in which prices always fully reflect available information is called efficient, no.
Let me read the second part, yes.
This paper after a discussion first, yes, first quick form is in which the information set is just historical crisis.
Our discussion. The win form has to do with historical places. What is information? First level historical places. Make sense.
Then.
There is strong form test in which the concern is whether prices sufficient adhere to other information that is obviously publicly available, yes.
Makes sense. Second level semi strong form and finally finally strong form test concerned with whether given for investors or group have monopolistic access to any information relevant.
For price, our review. Strong form has to do with inside the information. Make sense.
Any questions?
Have you understood all these things?
Let me see. Oh, the clock is OK. Great. I’m not gonna.
Let me start with two business.
But that we want to talk about today, yes, we are going to talk about.
The weak form, the fishing market hypothesis, the weak form, semi strong form and strong form.
And then we will first let me go efficient marketing model, yes.
Efficiency prices fully reflect all available information. Then efficient does not mean stock prices must go up in the news. No one can ever outperform the market. Efficient has to do with information. I asked Jeffrey and Jeffrey has said.
Perfect.
There are times that there are misconceptions, misconceptions regarding whatever. If markets were not efficient, investors would trade to take advantage of the inefficiencies and we will call this arbitrance, but we will call, we will talk about arbitrance after the meeting.
Supply and demand and competition means OK.
Wake for efficiency.
Random walk has to do with historical prices. There is a random walk when prices moves in a random way. We have considered, I’m talking about portfolio theory, the random walk as an important hypothesis here.
So next level semi strong form of efficiency, strong stock returns cannot be predicted using any public information. Yeah, and finally the strong form of market efficiency.
Yes, also private information.
This is.
Or this also could be asked in the middle. The question is so simple.
When technical analysis does not work. When technical analysis does not work.
But you could answer when a market is efficient in the.
In the waveform, yes, when technical analysis doesn’t work.
A. When the market is efficient in the will fall.
B.
When the market is efficient in the semi strong cold.
C When a market is in the strong form or D all of the above questions are correct. Which one? Which one will be the correct answer? D because if it doesn’t work.
For the semi strong, it will not work. Also for the weak and for the strong. Yeah, careful.
Fundamental analysis doesn’t work for the Smystrom, but works for the week for.
I’m talking about insiding information. You just talking about the struggle. Got it.
OK, have you understood this?
What is an anomaly?
Do you remember the cabin? Do you remember? I wish this cabin cabin considers markets efficiency and if a market is efficient, price and return goes.
Those are the only thing you tell me how much risk.
You want to hold and I will tell you the price, the return and which you will take this risk. Make sense.
Oh, Rob, let me go back. Let me go back. I have finished with the efficient market data for this. Yes. What is the idea of the efficient market data for this?
If a market is efficient in the strong form, technical analysis doesn’t work, technology doesn’t work and there are no insiders, yes.
And now I’m moving to a different part and this part I want. I want to explain you what had happened.
The fishing market, the fishing market hypothesis paper.
Was published in the year 696969, yes.
Fama Eugene Fama received no replace in year 2030.
What time?
30 years after that.
Yes.
This paper, official market hypothesis paper is in finance, the most quote, the most seated quote paper in history. Why?
Because a lot of people were saying, oh, I have made a discovery, I have discovered one anomaly, but is an anomaly is a circumstance.
That show us that markets are not efficient.
Once someone discover an anomaly, several things happen.
Several things happened. I have discovered I’m so clever. I have discovered an anomaly. I published anomaly, yes.
Where’s someone? What happened?
They are normally disappear because it has been found and a lot of people start taking other drugs and the new family becomes a little bit more red anger.
I’m joking, but I can imagine because it’s a market hypothesis. You can say that it was a dynamic, but you understand the point. No, there were people looking for anomalies, for example.
Before one example of anomaly, yes, before in December there were abnormal high returns in December. Why? Because a lot of CEOs have bonus and they used to give more return than.
Make up and in January returns goes up. You understand what I mean?
There are tons near Christmas. There are higher returns or companies whose name has to do with US, for example, for an American US companies that in the stock name appears US.
Has more returns or bigger returns or bigger price or lower returns regarding price than others. Make sense.
These guys, these kind of anomalies, once partings disappear.
You understand what I’m saying? Let me show you a different type of anomaly.
And do you know Boso Masuli group matrix?
No. And do you know the cycle life? The cycle life? Let me show you first. This is the life cycle of a problem. Yes, this is time and the beginning.
You don’t know what is going to happen. Then you grow, you grow, you become a gas cow and then you die. This has to do with a product. This has to do with a sector and here.
This is the cost of consulting matrix that here you have relative market share, you have the whole market or you don’t have the market and here is market growth rate, market growth rate here.
There is growth, here there isn’t growth, but here you are making profits and here you are making. Make sense.
Let me let me explain you what I want to translate. What you would prefer to buy at the store?
20 years ago for a telestop today.
But would you prefer to that?
Yes, but did you take after we stopped 20 years ago after we stopped the baby?
So if you take Apple stock 20 years ago and you calculate CAPM, CAPM will tell you 0 dividends. It will not make sense to buy Apple stocks 10 years ago. And if you look at Apple today, Apple is paying a dividend, so CAPM will tell you to buy.
I’m gonna stop today. You understand what I mean?
Is this an anomaly of efficient market hypothesis? A lot of people have said that this is an anomaly of efficient market hypothesis, but this is not an anomaly of efficient market hypothesis. This is an anomaly of CAPM.
Why? Because I am using Capen in order to compare two different animals.
I’m using a pen in order to compare apples with oranges in terms of juice or in terms of an oranges and oranges. Do you understand what I’m saying?
Same thing happened with the size of a company. You have a big, big size company, a big company.
More scale economies and you have a small company can be more flexible and you can have more. You cannot compare with say.
You cannot compare with the same captain, one thing or another one. Make sense? But a lot of people used to call this kind of anomalies, anomalies from the DC market, but this kind of anomalies.
That’s not has to do with PC market hypothesis, has to do with CAPM. But CAPM was before PC market hypothesis and people because CAPM was before, oh, CAPM is OK, you understand what I’m saying?
Let me go.
When thinking about for graph, do you remember the SCL? I told you not to remember it. SCL is just the data. This is an SCL and here you can take returns. These are clusters of companies group.
With its size, did you look this?
By looking this group by its size, you can see that CAPM does not hold and if then you do another group not dividing these companies by its size, you see that CAPM fulfill what I’m saying that.
Here the the idea of this. So simple, so simple, so simple. Oh, I don’t have. Sorry, I thought I have so simple. Personally, I would like to have here a picture of a hammer.
Amir.
Have you hear the expression?
You just have a hammer. You just see nails.
Have you heard that expression?
If you just have a hammer, you only see names. You have never heard of expression. What I’m saying is that if you only have one tool, man, I just have one tool, a hammer. It’s a tool.
I want your attention. I will eat with the hammer. Your makes no sense.
Why is capping?
It’s just one thing called beta, and beta has to do with.
The correlation between the stock and the market, no.
What about size?
What about growing opportunities? What about oil price? What about exports and imports? What about the GDP of France or the GDP of Spain? You understand what I mean? Could be other things that affect the price of the stock.
Absolutely, yes. The idea of this is that thinking about the CAPM, you just focus or you just think about the CAPM as I am trying to get the relationship between return and risk by using CAPM.
What is the conclusion we can have? Cabin is a big *** ** **.