Efficient Markets

Lyrics

Chorus I
This is the theory of efficient markets (so listen up!)
I'm gonna lay it down like carpet, so mark this
Lead you out of the darkness, it's no myth
You won't beat the market.

Verse I
The basic theory that I'm trying to explain
Is that the price of traded assets already contains
Any related information you could hope to use 'Cause in an active market, all news is old
news

You got secret knowledge, think you can't fail?
That's insider trading and you're headed to jail
So back to my point, if you recall
You can't outsmart the market, 'cause it knows all

There's a couple assumptions we gotta make
Or else the theory won't work, it might break
First, we assume that everybody acts in
A way to pursue their own satisfaction

We also assume expectations are rational
Actions will differ, some stressed some casual
It all cancels out, these lows and highs
And new info means expectations get revised 'Cause...

Chorus II
This is the theory of efficient markets (so listen up!)
I'm gonna lay it down like carpet, so mark this
Lead you out of the darkness, it's no myth
You won't beat the market

This is the theory of efficient markets (so listen up!)
I'm gonna lay it down like carpet, so mark this
Lead you out of the darkness, to start with
Then maybe you might beat the market

Verse II
Now efficient market theory is just a hypothesis,
And critics will refuse to follow it 'Cause a lot of the frameworks on how human brains work
Explain how the same words inflame different cognitive chains,

I'm talkin' bias. Overreactions, too much optimism
Expectations set too high, then the results miss 'em
Stocks that are exciting, we'll ride them to the top
But we ignore the risk that the bubble might pop

Look at 1987 or 2009,
Most people thought the market was fine
But in no time stocks crashed from a great height
How can that happen if the market is always right?

Then you got cats like my man Warren B (what up, Warren!)
Beating the market with consistency
See, with efficiency, this shouldn't exist
But when it does, what do we do with our hypothesis?

↥ return to top

Description

This rap song provides basic explanation of the theory of ‘efficient markets’ and the sometimes irrationality of the stock market and its trends.

This economics song is suitable to for supplementary teaching of stock market basics to high school, college, and graduate school students.

↥ return to top

Related Reading and Activities

↥ return to top

State Standards

State standards listed here are representative of school standards across the United States.

↥ return to top