Expectations of Returns and Expected Returns

Robin  Greenwood; Andrei  Shleifer

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Article | Review of Financial Studies | 2014

Expectations of Returns and Expected Returns

by Robin Greenwood and Andrei Shleifer

Abstract

We analyze time-series of investor expectations of future stock market returns from six data sources between 1963 and 2011. The six measures of expectations are highly positively correlated with each other, as well as with past stock returns and with the level of the stock market. However, investor expectations are strongly negatively correlated with model-based expected returns. The evidence is not consistent with rational expectations representative investor models of returns.

Keywords: Performance Expectations; Investment Return;

Format: Print

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Citation:

Greenwood, Robin, and Andrei Shleifer. "Expectations of Returns and Expected Returns." Review of Financial Studies 27, no. 3 (March 2014): 714–746. (Internet Appendix Here.)

About the Author

Robin Greenwood

George Gund Professor of Finance and Banking
Unit Head, Finance

Finance

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Article | Journal of Financial Economics | August 2018

Extrapolation and Bubbles

Nicholas Barberis, Robin Greenwood, Lawrence Jin and Andrei Shleifer

We present an extrapolative model of bubbles. In the model, many investors form their demand for a risky asset by weighing two signals: an average of the asset’s past price changes and the asset’s degree of overvaluation. The two signals are in conflict, and investors “waver” over time in the relative weight they put on them. The model predicts that good news about fundamentals can trigger large price bubbles. We analyze the patterns of cash-flow news that generate the largest bubbles, the reasons why bubbles collapse, and the frequency with which they occur. The model also predicts that bubbles will be accompanied by high trading volume and that volume increases with past asset returns. We present empirical evidence that bears on some of the model’s distinctive predictions.

Keywords: bubble; extrapolation; volume; Price Bubble; Mathematical Methods;

Citation:
Barberis, Nicholas, Robin Greenwood, Lawrence Jin, and Andrei Shleifer. "Extrapolation and Bubbles." Journal of Financial Economics 129, no. 2 (August 2018): 203–227. View Details

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Working Paper | HBS Working Paper Series | 2018

The Impact of Pensions and Insurance on Global Yield Curves

Robin Greenwood and Annette Vissing-Jorgensen

We document a strong effect of pension and insurance company (P&I) assets on the long end of the yield curve. Using data from 26 countries, the yield spread between 30-year and 10-year government bond yields is negatively related to the ratio of pension assets (in funded and private pension and life insurance arrangements) to GDP, suggesting that preferred-habitat demand by the P&I sector for long-dated assets drives the long end of the yield curve. We draw on changes in regulations in several European countries between 2008 and 2013 to provide well-identified evidence on the effect of the P&I sector on yields and to show that P&I demand is in part driven by hedging linked to the regulatory discount curve. When regulators reduce the dependence of the regulatory discount curve on a particular security, P&I demand for the security falls and its yield increases. We describe settings in which pension discount rules can have a destabilizing impact on bond markets.

Keywords: pension funds; Investment Funds; Insurance; Assets; Interest Rates; Bonds;

Citation:
Greenwood, Robin, and Annette Vissing-Jorgensen. "The Impact of Pensions and Insurance on Global Yield Curves." Harvard Business School Working Paper, No. 18-109, June 2018. View Details

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Case | HBS Case Collection | November 2006 (Revised November 2017)

Kerr-McGee

Robin Greenwood and André Perold

Activist investors Carl Icahn and Barry Rosenstein acquire a stake in Oklahoma-based company Kerr-McGee. They demand two board seats and ask the company to make several operational and financial changes, including the repurchase of equity and divestiture of their chemicals business. The case protagonist, Luke Corbett, CEO, opposes these changes.

Keywords: Restructuring; Chemicals; Equity; Investment; Governance Controls; Managerial Roles; Chemical Industry; Energy Industry; United States;

Citation:
Greenwood, Robin, and André Perold. "Kerr-McGee." Harvard Business School Case 207-020, November 2006. (Revised November 2017.) View Details

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Expectations of Returns and Expected Returns

Abstract

Citation:

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