Question

1. Draw the Yield curve for U.S. government bonds as it was on February 5th, 2020.

Explain what a yield curve is. Describe precisely the yield curve you draw.

2.

Who is Eugene Fama ? Which hypothesis did he developed in his Ph.D. dissertation ?

Explain this hypothesis and its three forms.

Who is Robert Shiller ? How does he participate in the debate about this hypothesis ?

Answer 1

1. Data for the calculation was taken from US dept.of treasury official website -

The yield curve shows the yield rates vs the maturity period of various us govt bonds issued my the govt. Generally higher the maturity time , greater is the risk for the Investors, so a higher rates are offered for longer term maturity bonds. The exception being in the recessionary periods when the demand of debt securities rises ,so the issuer may offer a lower rate often in intermittent time frame.

Yield Curve.

Yield Curve is a graphical plot of fixed income instruments generally the bonds which shows the prevailing yield of the debt securities over different time frame.

X axis = Maturity time

Y axis =. Yield rates offered.

2.

Eugene fama was an american economist , who devised the EHM theory of efficient market hypothesis in his work in asset pricing theory.

There are basically 3 forms of market ,

The Storng form of efficiency where all public and private domain information is reflected in security prices, Semi strong form where only public available info is reflected and Weak form where no fundamental information is reflected in price and market is completely speculative.

Robert shiller is a American economist and professor of Yale University who challenged the EHM theory and stated that all price do rationally reflect the market sentiments and can be challenged in long term. Shiller claimed that famas efficient market theory is half true and only applicable in Value investing firms while mostly majority of the Market is driven by the current economic sentiments.