113分析金融市场与金融机构 第六章.ppt

113分析金融市场与金融机构_第六章Chapter Six
THE THEORY OF EFFICIENT CAPITAL MARKETS
Part II Principles of Financial Markets
Chapter Outline
Theory of Rational Expectations
Efficient Markets Theory
Theory of Rational Expectations
Example:
Suppose that when Joe travels when it is not rush hour, it takes average of 30 minutes for his trip to work. Sometimes it takes him 35 minutes, other times 25 minutes, but the
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<a href="/">江西最好的癫痫病医院</a>average not-rush-hour driving time is 30 minutes. If ,however Joe leaves for wok during the rush hour ,it takes him ,on average, an additional 10minutes to wok. Given that his expectation are rational, what should Joe expect his driving time to be?
Theory of Rational Expectations
Rational expectation (RE) = expectation that is optimal forecast (best prediction of future) using all available information: ., RE 
Xe = Xof
Rational expectation, although optimal prediction, may not be accurate
2 reasons expectation may not be rational
1. Not best prediction
2. Not use available information
Implications:
1. Change in way variable moves, way expectations formed changes
2. Forecast errors on average = 0 and are not predictable
Theory of Rational Expectations
Rational expectations makes sense because is costly not to have optimal forecast
Efficient Market Hypothesis: Rational Expectations Applied to Financial Markets
Efficient Markets Hypothesis
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When financial markets are in equilibrium, prices of financial instruments reflect all readily available information
Expectations in the financial markets are equal to optimal forecasts using all available information
Efficient Markets Theory
Efficient Markets Theory
Rational Expectations implies:
Pet+1 = Poft+1  RETe = RETof (1)
Market equilibrium
RETe = RET* (2)
Put (1) and (2) together: Efficient Markets Theory
RETof = RET*
Efficient Markets Theory
Current prices in a financial