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• Case | HBS Case Collection | August 2019

  Paradigm Capital Value Fund

  Luis M. Viceira and Elena Corsi

  Karl Jan Erick Hummel had founded Paradigm Capital Value Fund in 2007 together with Columbia Business School Professor Bruce Greenwald, an expert in value investing and now chairman of the fund. The fund followed the principles of value investing to their target universe: publicly traded companies with market capitalization between €100 million and €4.5 billion based in Germany, the Nordic countries, the U.K., and Ireland. Hummel and Greenwald believed they had developed an investing edge in that universe, ignored by large U.S. and U.K. based funds, through deep research and by locating their headquarters close to companies and their management. Hummel and his team of six analysts were based in a small suburb of Munich, Germany. Paradigm Capital Value Fund was highly concentrated, with 60% of its assets invested in four stocks, and held its positions for long periods of time. Hummel had to decide if it was time to divest from one of their main investments, a German manufacturer of roll-over car washing systems, and instead invest in a German truck equipment supplier. At the same time, Hummel was concerned by how to grow the fund.

  Keywords: Investment Activism; Investment Portfolio; Financial Management; Growth and Development Strategy;

  Citation:

  Viceira, Luis M., and Elena Corsi. "Paradigm Capital Value Fund." Harvard Business School Case 220-014, August 2019.  View Details

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• Case | HBS Case Collection | August 2019

  Sustainable Investing at J.P. Morgan Private Bank

  Sara Fleiss and Luis Viceira

  Citation:

  Fleiss, Sara, and Luis Viceira. "Sustainable Investing at J.P. Morgan Private Bank." Harvard Business School Case 220-016, August 2019.  View Details

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• Working Paper | 2019

  Reflexivity in Credit Markets

  Robin Greenwood, Samuel G. Hanson and Lawrence J. Jin

  Reflexivity is the idea that investors' biased beliefs affect market outcomes, and that market outcomes in turn affect investors' beliefs. We develop a behavioral model of the credit cycle featuring such a two-way feedback loop. In our model, investors form beliefs about firms' creditworthiness, in part by extrapolating past default rates. Investor beliefs influence firms' actual creditworthiness because firms that can refinance maturing debt on favorable terms are less likely to default in the short run—even if fundamentals do not justify investors' generosity. Our model is able to match many features of credit booms and busts, including the imperfect synchronization of credit cycles with the real economy, the negative relationship between past credit growth and the future return on risky bonds, and "calm before the storm" periods in which firm fundamentals have deteriorated but the credit market has not yet turned.

  Keywords: reflexivity; Attitudes; Financial Markets; Forecasting and Prediction; Investment; Credit;

  Citation:

  Greenwood, Robin, Samuel G. Hanson, and Lawrence J. Jin. "Reflexivity in Credit Markets." NBER Working Paper Series, No. 25747, April 2019.  View Details

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