More from these Authors

• Working Paper | HBS Working Paper Series | 2020

  Predictable Financial Crises

  Robin Greenwood, Samuel G. Hanson, Andrei Shleifer and Jakob Ahm Sørensen

  Using historical data on post-war financial crises around the world, we show that crises are substantially predictable. The combination of rapid credit and asset price growth over the prior three years, whether in the nonfinancial business or the household sector, is associated with about a 40% probability of entering a financial crisis within the next three years. This compares with a roughly 7% probability in normal times, when neither credit nor asset price growth has been elevated. Our evidence cuts against the view that financial crises are unpredictable “bolts from the sky” and points toward the Kindleberger-Minsky view that crises are the byproduct of predictable, boom-bust credit cycles. The predictability we document favors macro-financial policies that “lean against the wind” of credit market booms.

  Keywords: Financial Crisis; Forecasting and Prediction; Mathematical Methods;

  Citation:

  Greenwood, Robin, Samuel G. Hanson, Andrei Shleifer, and Jakob Ahm Sørensen. "Predictable Financial Crises." Harvard Business School Working Paper, No. 20-130, June 2020.  View Details

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• Case | HBS Case Collection | February 2020

  Highfields Capital and McDonalds

  Mark Egan and Robin Greenwood

  McDonald’s reported its fifth consecutive quarter of declining same-store sales growth in early 2015. Despite McDonald’s recent poor performance, Jonathon S. Jacobson, the founder and Chief Investment Officer of Boston-based Highfields Capital Management, had initiated a large position in McDonald’s stock. Jacobson and his team believed that there was enormous upside in McDonald’s stock if management successfully implemented what they perceived to be straightforward operational and financial changes. McDonald’s needed to return to its core competencies of producing quick and reliable burgers and fries. In addition, they believed that financial restructuring could unlock sizable value for investors. Jacobson and his team debated whether to more forcefully articulate their vision for the company and began drafting a letter to Andrew McKenna, McDonald’s Chairman.

  Keywords: McDonald's; Stocks; Performance Improvement; Operations; Finance; Restructuring; Value Creation; Financial Services Industry;

  Citation:

  Egan, Mark, and Robin Greenwood. "Highfields Capital and McDonalds." Harvard Business School Case 220-061, February 2020.  View Details

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• Working Paper | 2020

  A Quantity-Driven Theory of Term Premia and Exchange Rates

  Robin Greenwood, Samuel G. Hanson, Jeremy C. Stein and Adi Sunderam

  We develop a model in which specialized bond investors must absorb shocks to the supply and demand for long-term bonds in two currencies. Since long-term bonds and foreign exchange are both exposed to unexpected movements in short-term interest rates, a shift in the supply of long-term bonds in one currency influences the foreign exchange rate between the two currencies, as well as bond term premia in both currencies. Our model matches several important empirical patterns, including the co-movement between exchange rates and term premia, as well as the finding that central banks’ quantitative easing policies impact exchange rates. An extension of our model sheds light on the persistent deviations from covered interest rate parity that have emerged since 2008.

  Keywords: term premium; exchange rate; Bonds; Currency; Theory;

  Citation:

  Greenwood, Robin, Samuel G. Hanson, Jeremy C. Stein, and Adi Sunderam. "A Quantity-Driven Theory of Term Premia and Exchange Rates." NBER Working Paper Series, No. 27615, July 2020.  View Details

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