Efficient Market Hypothesis, a Bleg:

The first topic in my corporate finance class – starting in, alas, not very many weeks – is valuation and market efficiency.

This is a law school class, and the approach to valuation is not technical; it is mostly just a description of why it is important, in the context of a survey class that is usually a follow-on to business associations and precedes more specialized upper level business law classes. I am using Professor Bratton’s text, which I like very much, although it covers a whole year – and more – worth of material. So we don’t deal with M&A and many other things that this very comprehensive text addresses. For many law students, though, this is the first introduction to risk – the first introduction to finance, but risk in particular – as well as to financial markets and institutions. They have dealt with it in various ways in the first year, but only indirectly, mediated by the traditional legal doctrines of tort, contract, etc.

Students ask me what level of sophistication I am aiming for in this kind of upper level survey course. My current, and revisable, answer is that at a very minimum, I think they need the kind of sophistication that appellate judges bring to their opinions, to be able to read and understand those opinions, and to be able to have a start on writing briefs to judges on these issues. At least to be able to read the opinions on these topics offered by generalist appellate judges. Is that the right standard for upper level law students, often with no exposure to economics or business other than law school, in a midtier law school?

(Update: Commenters have made many very helpful suggestions, thanks! I can also see that I want to do a separate post, perhaps as I fine-tune my corporate finance class syllabus, just on the pedagogy of teaching finance to law students.)