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Lecture 15 - Uncertainty and the Rational Expectations Hypothesis: Applications to Predicting Stock Prices, Default Probabilities, and Hyperbolic Discounting

Lecture 15 - Uncertainty and the Rational Expectations Hypothesis: Applications to Predicting Stock Prices, Default Probabilities, and Hyperbolic Discounting

This video was recorded at YALE - ECON 251 - Financial Theory. According to the rational expectations hypothesis, traders know the probabilities of future events, and value uncertain future payoffs by discounting their expected value at the riskless rate of interest. Under this hypothesis the best predictor of a firm's valuation in the future is its stock price today. In one famous test of this hypothesis, it was found that detailed weather...

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