Types of Financial Systems

* Implications of the EMHI- -Don't pay for alpha, just pay fer bita ushs and beta rushs are so for beta ish, we can cheap to obtai have fion passive inden-based investing. * Investment institutions as Intermediaries- Does Machet Efficieny ment mean That invest-management is not needed at all? -No, it doesn't That there are mean that, its just which many things wonderful things do for the asset management clients that is Lan not linked to alpha broz that is escantially the bit that matters here. You create alpha ee not the industry doesn't wate est alpha, they shouldnt charge high fees for alpha but beta can gine you great exposure to different asset asse classes that many investors without investment management would not hane access to Not every broz what you search for alpha is wasted. do for other investen in efficient is lems create more information, more efficient prices. * Mochet-based financial systems:- conomids usually distinguish beliveen. market-based economy and ony, why financial markets ane very important is a financial system and the bank based economy, whee ly more important banks one relative. It is all about the relative importance. in any economy. banks by far ae the biggest financial intermediary, meaning banks play the most important part in leuens of channelling savings to the Bank lenbing is by far conomy. the most important source of enternal soince of finance for fums everywhere. * one of the remachable thing. of firurs which thousands is that we find are in market-based finemial systers. owned by many very small shaubildes. * In market-based economies, we have got households that ennert in financial markets. Many of them directly, meaning they hold stocks that might have broker portfolio. even if ils not directly they may have pension ( the pensión pot invests مند Stocks Bank-based financial systems:- - They have strong banking sector, relatively less developed financial machute, very few listed companies, and even listed, there is a key That again if they are point the thave ownership is i'e it is very very concentrated biggest lave that the thanchobdee will hold 2.1. 1 3.1. -They a single concente shareholder choucholders will which is much share ownership where group of 2-3 effectively control the frem. more like family fum. * Implications for investment managers- Macket-Lased explem -What are The price of What are The value fentor other than the cause of the undulying and? The hey farters hat determine Call option? -Volatility and me want the managers to take bigger intes and this can be done by giving them options broz the من hey dine of observed values thie winderlying assets, volatility of increase the They volatility of the stock can become very wealthy. Refer to the stile and video for the enample * Bank-based System :-- There is no conflict between majority Shareholders and minsity shareholders beoz there is no separation beliveen ownersting and control This is agency conflict type 2 -we find lot of bank-based system pritting in in place potential solutions to eguney conflicts that don't exist. In this systeem you. don't need to put in place suh at stock options. based cysten precisely in have fot 2 in a bank tit to put more system where you dominant shareholder, you don't have to incentivize managers to take eish because the dominant Shareholder can monitor the manager. and check them out if they don't do well and if the shareholder would like. - In most of the caves, the se dominant Shareholder is the CEO itself. -The stocks and options courants meant to combat a type are a agency problem That do not exist is alot of country, broz they do not have stion of ownership and control. separ