ECON 251 - Lecture 1 - Why Finance?

Lecture 1 - Why Finance?


This lecture gives a brief history of the young field of financial theory, which began in business schools quite separate from economics, and of my growing interest in the field and in Wall Street. A cornerstone of standard financial theory is the efficient markets hypothesis, but that has been discredited by the financial crisis of 2007-09. This lecture describes the kinds of questions standard financial theory nevertheless answers well. It also introduces the leverage cycle as a critique of standard financial theory and as an explanation of the crisis. The lecture ends with a class experiment illustrating a situation in which the efficient markets hypothesis works surprisingly well.


Ross, Corporate Finance, pp. 1-20

Sharpe, Investments, pp. 1-25, 47-91

Bodie, Finance, pp. 1-59

Course Media





Low Bandwidth Video

mov [100MB]

High Bandwidth Video

mov [500MB]