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transcript08 - Financial Markets: Lecture 8 Transcript...

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Financial Markets: Lecture 8 Transcript February 6, 2008 << back Professor Robert Shiller: Next Wednesday we're having David Swensen lecture to us. He heads up the Yale endowment--or the investment of the Yale endowment--and I have a New York Times article on the syllabus, just sort of a biography of him you could read. On reserve, I have his recent books, so I hope that you will get a lot from him. I misspoke, he's not a Yale college graduate, he's a Yale Economics PhD; his undergraduate was from University of Wisconsin but he's been at Yale a very long time. He came to Yale from Wall Street in 1985 and at that time the Yale endowment was worth about one billion dollars. It is now, under his leadership, $22.5 billion and that explains a lot of the quality of your life because that means we have about $2 million dollars per student. The interest on $2 million dollars is--what is that? I can't even do division-- $100,000 a year. So that's why Yale is much more generous with financial aid than other universities and why we have beautiful--of course, this room was built, I believe, in the 30s. Don't thank David Swensen for this room but for a lot of other things. So Yale had a 28% return on its portfolio last year, which was number one of all college endowments. Moreover, it's had a 17.8% average return for the last ten years, which is number one among university endowments. We beat Harvard, we beat Princeton, but actually Princeton was--the head of the Princeton endowment is a protégé of David Swensen and I'm sure these people get together and talk. All of the major universities--Harvard has been doing very well too and so have Duke, MIT, Amherst, a lot of--it seems that universities manage to invest very well, at least they have in recent decades. I think that has--my theory--that has something to do with the intellectual atmosphere at universities. That is, investing well requires careful study and the intellectual tradition we have at universities helps promote that. I don't know if David Swensen can continue to do this. I think we're--he's had a spectacular return, but he's getting into a challenging year. This is a year of financial crises, so I'm warning you ahead that--don't expect a 28% return on the Yale portfolio for the coming year. You can ask him about that. If he can do it again in this situation, it will be amazing. That would be next Wednesday. Meanwhile, I want to talk today about regulation. Wow, I think we're alright--something needs more regulation here--all these wires. I want to motivate regulation in terms of the last lecture. Our previous lecture was about behavioral finance and it was about human failings. I think that we to motivate a lot of our regulation of financial markets by the kinds of errors that people make. I wanted to list a few errors that are well-known and that are exploited by unscrupulous people in finance. I think they motivate a lot of what--I'm going to write a number of principles of behavioral finance down and just mention them briefly and then
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This note was uploaded on 03/17/2012 for the course ECON 252 taught by Professor Robertshiller during the Spring '08 term at Yale.

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transcript08 - Financial Markets: Lecture 8 Transcript...

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