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Week 5 Notes

by: D S

Week 5 Notes FIN 500

Introduction to Finance
Adam Clark-Joseph

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Introduction to Finance
Adam Clark-Joseph
Class Notes
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This 2 page Class Notes was uploaded by D S on Thursday October 8, 2015. The Class Notes belongs to FIN 500 at University of Illinois at Urbana-Champaign taught by Adam Clark-Joseph in Summer 2015. Since its upload, it has received 31 views. For similar materials see Introduction to Finance in Finance at University of Illinois at Urbana-Champaign.


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Date Created: 10/08/15
Introduction to Finance Week 5 Professor ClarkJoseph University of Illinois Urbana Champaign today 1 EMH summarized Yay Yale Who was the fool who was the wise man the beggar or the emperor Whether poor or rich in death alike EMH statement about an expectation any market ef ciency will be arbitraged away F continous time ltration available at time T previsible process determine value at 739 for stopping time fx measurable based on 739 trading rule collection of stopping times New approach is to examine all the fund managers at a single time period instead of looking at one fund manager across many time periods New way to think what if arbitrageurs were not all equal and thus some people can get average returns as opposed to the marginal rates marginal vs average marginal trader earning the least amount yet if everyone equal then they all earn some minimum Talked about Yale Investment Of ce and how successful they have been Yale s game is that have external fund managers who do the direct investment if RWH or perfect market ef cient holds then mark to market valuation is ideal Idea of 2 and 20 Roll Critique application to obtaining superior MV performance practical implementa tion with asset classes It is a famous analysis of the validity of empirical tests of the capital asset pricing model CAPM by Richard Roll Talked about pairs trading where you pick one long and one short stock bc of idiosyncratic linkage illiquidity distribtions sometimes it may make sense just to have an equal weighted portfolio Class notes have a question that will highly likely be on the midterm Bulldog CLT Gaussian Long Lived Illiquid Asset Classes based on functional characteristics they offer a framework for optimizing portfolio allocations where the joint distributions of returns are dif cult to summarize and or estimate Would xed income be suitable Yes debt instruments in ation No high grade debt and low grade debt have different market correlations Reasonable to use Yale s asset classes as a starting point Compare lumber to living trees and whether it was logical to have them in the same asset class universe to encompass as much of the world as possible Principal Agent Problem need to make sure people do coninvest in their strategies 2 Papers Referenced People Cohen7 Polk7 Silli 2010 identify the fund manager best idea that best idea stock will outperform the benchmark Peter Lynch Magellen fund successes Arrow prices 3 Tangents ACJ and the nancial crisis Norwegian Sovereign Fun cattle futures is a serious business more things about Yale asset allocation and antics always make sure that you have inhouse counsel


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