Financial Markets

Text #2 Stocks for the Long Run Jeremy Siegel, 1994, 1998, 2002

• Book is best known for making the case for stocks as best long-term investment
• But in fact offers a wide view of empirical literature on financial markets

Text #3 New Financial Order Robert Shiller 2003

• Extrapolates trends from the past into the financial future
• Last 20 years saw massive financial innovation
• Next 20 years will see even more financial innovation
• Financial theory offers a conceptual framework for a broad advance in the depth of risk management

Packet of Readings for Econ252

• Audubon Copy Whitney Ave. Near Clark’s
• Required purchase

Lecture 2: The Universal Principle of Risk Management: Pooling and Hedging of Risk

• Origins of concept of probability
• Multiplication rule, law of large numbers is basis of risk management
• Examples of risk pooling in operation
• Review of basic statistical and associated economic concepts: Expected utility theory, variance, covariance regression analysis