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Finance

Finance

    • May 2014
    • Article

    Dynamics of Demand for Index Insurance: Evidence from a Long-Run Field Experiment

    By: Shawn A. Cole, Daniel Stein and Jeremy Tobacman

    This paper estimates how experimentally-manipulated experiences with a novel financial product, rainfall index insurance, affect subsequent insurance demand. Using a seven-year panel, we develop three main findings. First, recent experience matters for demand, consistent with overinference from small samples. Second, spillovers also matter, in the sense that the recent payout experience of village co-residents affects insurance demand about as much as one's own recent payout experience. Third, the spillover effect decays as time passes while the effect of one's own experience does not. We discuss implications of this analysis for commercial sustainability of this complicated but promising risk management technology.

    • May 2014
    • Article

    Dynamics of Demand for Index Insurance: Evidence from a Long-Run Field Experiment

    By: Shawn A. Cole, Daniel Stein and Jeremy Tobacman

    This paper estimates how experimentally-manipulated experiences with a novel financial product, rainfall index insurance, affect subsequent insurance demand. Using a seven-year panel, we develop three main findings. First, recent experience matters for demand, consistent with overinference from small samples. Second, spillovers also matter, in the...

    • 2014
    • Article

    Expectations of Returns and Expected Returns

    By: Robin Greenwood and Andrei Shleifer

    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.

    • 2014
    • Article

    Expectations of Returns and Expected Returns

    By: Robin Greenwood and Andrei Shleifer

    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...

    • August 2014
    • Article

    Mortgage Convexity

    By: Samuel G. Hanson

    Most home mortgages in the United States are fixed-rate loans with an embedded prepayment option. When long-term rates decline, the effective duration of mortgage-backed securities (MBS) falls due to heightened refinancing expectations. I show that these changes in MBS duration function as large-scale shocks to the quantity of interest rate risk that must be borne by professional bond investors. I develop a simple model in which the risk tolerance of bond investors is limited in the short run, so these fluctuations in MBS duration generate significant variation in bond risk premia. Specifically, bond risk premia are high when aggregate MBS duration is high. The model offers an explanation for why long-term rates could appear to be excessively sensitive to movements in short rates and explains how changes in MBS duration act as a positive-feedback mechanism that amplifies interest rate volatility. I find strong support for these predictions in the time series of US government bond returns.

    • August 2014
    • Article

    Mortgage Convexity

    By: Samuel G. Hanson

    Most home mortgages in the United States are fixed-rate loans with an embedded prepayment option. When long-term rates decline, the effective duration of mortgage-backed securities (MBS) falls due to heightened refinancing expectations. I show that these changes in MBS duration function as large-scale shocks to the quantity of interest rate risk...

    • 2014
    • Working Paper

    Financial Repression in the European Sovereign Debt Crisis

    By: Bo Becker and Victoria Ivashina

    By the end of 2013, the share of government debt held by the domestic banking sectors of Eurozone countries was more than twice its 2007 level. We show that this type of increasing reliance on the domestic banking sector for absorbing government bonds generates a crowding out of corporate lending. For a given domestic firm, new debt is less likely to be a loan—i.e., the loan supply contracts—when local banks have purchased more domestic sovereign debt and when that debt is risky (as measured by CDS spreads). These effects are most pronounced in the period following the second Greek bailout in early 2010.

    • 2014
    • Working Paper

    Financial Repression in the European Sovereign Debt Crisis

    By: Bo Becker and Victoria Ivashina

    By the end of 2013, the share of government debt held by the domestic banking sectors of Eurozone countries was more than twice its 2007 level. We show that this type of increasing reliance on the domestic banking sector for absorbing government bonds generates a crowding out of corporate lending. For a given domestic firm, new debt is less likely...

Faculty Unit

The Finance Unit produces research addressing issues of present and future importance to managers, regulators, and policy-makers.
Finance Unit

Our intellectual roots are based in a long line of scholars from Robert Merton whose collaborative work on risk management and option pricing won him the Nobel Prize in Economics in 1997, to John Lintner who co-created the Capital Asset Pricing Model and made significant contributions to dividend policy, and Gordon Donaldson whose work helped shape the field of corporate finance. We strive to understand how managers and firms make value-enhancing decisions; and how financial institutions, markets, and instruments contribute to this process. Our approach to research is distinguished by its unique combination of theory, empirical analysis, mathematical modeling, and field observations at companies.

Faculty Unit

The Finance Unit produces research addressing issues of present and future importance to managers, regulators, and policy-makers.

Finance Unit

Recent Publications

The Retail Habitat

By: Toomas Laarits and Marco Sammon
  • October 2025 |
  • Article |
  • Journal of Financial Economics
Retail investors trade hard-to-value stocks. Controlling for size, stocks with a high share of retail-initiated trades are composed of more intangible capital, have longer duration cash-flows and a higher likelihood of being mispriced. Consistent with retail-heavy stocks being harder to value, we document that such stocks are less sensitive to earnings news. As an additional consequence, the well-known earnings announcer risk premium is limited to low retail stocks only. Further, high-retail stocks are more sensitive to retail order flow and are especially expensive to trade around earnings announcements. Overall, the findings document a new dimension of investor heterogeneity and suggest the comparative advantage of retail in holding hard-to-value stocks.
Keywords: Retail; Retail Trade; Intangible Capital; Mispricing; Institutional Investing; Stocks; Valuation
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Laarits, Toomas, and Marco Sammon. "The Retail Habitat." Journal of Financial Economics 172 (October 2025).

Measurement and Effects of Bank Exit Policies

By: Daniel Green and Boris Vallée
  • October 2025 |
  • Article |
  • Journal of Financial Economics
We study whether exit policies by financial institutions have financial and real consequences on the firms they target, using bank coal exit policies as a laboratory. In contrast to theories assuming high capital substitutability, we find large effects of these policies. Bank exit policies negatively affect both the financing and operation of coal assets. Substitution to other sources and providers of capital appears to be limited. Coal power plants owned by firms exposed to exit policies are more likely to retire, translating into lower CO2 emissions. Exit policies have reduced CO2e emissions from energy production by an estimated 0.62 gigaton.
Keywords: Coal Power; Financing and Loans; Banks and Banking; Policy; Energy Industry
Citation
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Green, Daniel, and Boris Vallée. "Measurement and Effects of Bank Exit Policies." Journal of Financial Economics 172 (October 2025).

Cristina Ventura at White Star Capital

By: Linda A. Hill, Allison J. Wigen, Dave Habeeb and Ruth Page
  • September 2025 |
  • Case |
  • Faculty Research
[pre-abstract] This multimedia case should be assigned to students in advance of class. [abstract] This multimedia case study focuses on General Partner and Chief Catalyst Officer Cristina Ventura at White Star Capital, as she builds an ecosystem for investors and startups in Southeast Asia. The case follows how Ventura worked to break down geographic siloes and build connections in the region, while setting up White Star Capital's office in Singapore, building a team both local and global. The case also charts Ventura's path as a leader, with particular focus on her ecosystem building, personal investment philosophy, and purpose-driven leadership. The case ends with White Star Capital looking to expand the firm's strength in Southeast Asia, while turning to new areas of growth and opportunity. Ventura is left wondering how she can apply the catalyst leadership lessons she has learned in the MENA region.
Keywords: Investing For Impact; Investment Fund; Investment Strategy; Entrepreneurial Ecosystems; Teams; Purpose; Asia; Southeast Asia; Technology; Start-ups; Venture Capital; Venture Investing; Investment; Investment Funds; Entrepreneurship; Leadership; Singapore; Asia; Southeast Asia; Europe
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Hill, Linda A., Allison J. Wigen, Dave Habeeb, and Ruth Page. "Cristina Ventura at White Star Capital." Harvard Business School Multimedia/Video Case 425-710, September 2025.

China's Perilously Imbalanced Economic Success

By: Meg Rithmire
  • September 2025 |
  • Article |
  • Current History
China’s contemporary economic trajectory is paradoxical, marked by both extraordinary technological advancement and mounting macroeconomic vulnerabilities. China has achieved global leadership in advanced manufacturing sectors such as electric vehicles and batteries, and continues to innovate in fields like artificial intelligence. But these successes are offset by deepening financial and fiscal constraints, most visible in a real estate crisis, declining consumer confidence, and soaring local government debt. State-driven resource mobilization, closed financial institutions, and fiscal weakness have produced both global champions and massive inefficiencies. Fiscal reforms and financial modernization are required to translate industrial might into broad-based prosperity, but an authoritarian political structure will make this more challenging than earlier rounds of reforms.
Keywords: Property; Financial Markets; Economic Slowdown and Stagnation; Household; Economic Systems; Government and Politics; Real Estate Industry; Financial Services Industry; Technology Industry; Energy Industry; China
Citation
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Rithmire, Meg. "China's Perilously Imbalanced Economic Success." Current History 124, no. 863 (September 2025): 203–208.

Sticky Capital Controls

By: Miguel Acosta-Henao, Laura Alfaro and Andrés Fernández
  • September 2025 |
  • Article |
  • Journal of International Economics
There is much ongoing debate on the merits of capital controls as effective policy instruments. The differing perspectives are due in part to a lack of empirical studies that look at the intensive margin of controls, which in turn has prevented a quantitative assessment of optimal capital control models against the data. We contribute to this debate by addressing both positive and normative features of capital controls. On the positive side, we build a new dataset using textual analysis, from which we document a set of stylized facts of capital controls along their intensive and extensive margins for 21 emerging markets. We document that capital controls are “sticky;” that is, changes to capital controls do not occur frequently, and when they do, they remain in place for a long time. Overall, they have not been used systematically across countries or time, and there has been considerable heterogeneity across countries in terms of the intensity with which they have been used. On the normative side, we extend a model of capital controls relying on pecuniary externalities augmented by including an (S, s) cost of implementing such policies. We illustrate how this friction goes a long way toward bringing the model closer to the data. When the extended model is calibrated for each of the countries in the new dataset, we find that the size of these costs is large, thus substantially reducing the welfare-enhancing effects of capital controls compared with the frictionless Ramsey benchmark. We conclude with a discussion of the structural interpretations of such costs, which calls for a richer set of policy constraints when considering the use of capital controls in models of pecuniary externalities.
Keywords: Capital Controls; Macroprudential Policies; Stickiness; Intensive; (S, S) Costs; Capital; Management; Macroeconomics; Governance Controls; Mathematical Methods
Citation
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Acosta-Henao, Miguel, Laura Alfaro, and Andrés Fernández. "Sticky Capital Controls." Art. 104104. Journal of International Economics 157 (September 2025).

Public Disclosure of Private Meetings: Does Observing Peers’ Information Acquisition Affect Analysts’ Attention Allocation?

By: Yi Ru, Ronghuo Zheng and Yuan Zou
  • September 2025 |
  • Article |
  • Journal of Accounting Research
We investigate the impact of observing peers’ information acquisition on financial analysts’ allocation of attention. Using the timely disclosure mandate by the Shenzhen Stock Exchange as a setting, we find that, shortly after analysts observe that a firm has been visited by peer analysts, they reduce short-term attention to that firm, as indicated by a reduced tendency to conduct follow-up visits. Nonvisiting analysts who do not conduct follow-up visits are more likely to discontinue coverage of the visited firm. These findings are consistent with the conjecture that the timely disclosure reveals the first-mover advantage of visiting analysts, leading nonvisiting ones to reallocate their limited attention. We also find that, compared to the pre-mandate period, the information environments of visited firms deteriorate immediately after an analyst’s visit but not over the longer term. Further evidence suggests that the timely disclosure mandate has positive externalities in the form of increased immediate attention to and improved short-term information environments of unvisited peer firms.
Keywords: Corporate Disclosure; Information; Financial Institutions; Accounting; Financial Markets; Financial Services Industry; China
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Ru, Yi, Ronghuo Zheng, and Yuan Zou. "Public Disclosure of Private Meetings: Does Observing Peers’ Information Acquisition Affect Analysts’ Attention Allocation?" Journal of Accounting Research 63, no. 4 (September 2025): 1629–1677.

Apollo Global Management

By: George Serafeim and Michael Norris
  • August 2025 |
  • Case |
  • Faculty Research
Apollo Global Management—long known for opportunistic private-equity deals—has morphed into an insurance-anchored credit powerhouse after fully acquiring life-annuity issuer Athene. CEO Marc Rowan’s bold bet is that an asset-heavy balance sheet, fueled by Athene’s hundreds of billions of long-duration liabilities, can deliver superior, repeatable returns and propel assets under management to $1.5 trillion within five years. Yet public markets award Apollo a multiple on its earnings that is far below asset-light peers such as Blackstone, highlighting important trade-offs. This case lets class participants grapple with seven inter-locking questions: Why is Apollo’s valuation multiple lower—and is the market right? What synergies and frictions arise when an alternative asset manager owns an insurer? Is an asset-heavy strategy visionary or misguided? How should Apollo balance the often-conflicting incentives of policyholders, fund LPs, and shareholders? And, ultimately, is Rowan’s integrated model the best route to double AUM? Instructors can guide participants to test hypotheses about business-model innovation, business strategy, cost of capital, vertical integration, and risk management in today’s rapidly evolving private-markets ecosystem.
Keywords: Alternative Assets; Insurance; Retirement Savings; Funding Sources; Organizational Transformations; Transformation; Business Strategy; Financial Services; Private Credit; Finance & Insurance; Private Equity; Private Ownership; Credit; Financing and Loans; Finance; Financial Services Industry; Insurance Industry; United States
Citation
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Serafeim, George, and Michael Norris. "Apollo Global Management." Harvard Business School Case 126-009, August 2025.

Valeant: Pharma’s Enron? (B)

By: Aiyesha Dey, Jonas Heese and David Allen
  • August 2025 |
  • Case |
  • Faculty Research
This supplement details the fallout from Valeant’s decline after 2016, noting federal convictions and SEC findings.
Keywords: Accounting; Business Earnings; Financial Reporting; Revenue Recognition; Financial Statements; Acquisition; Mergers and Acquisitions; Financial Management; Health; Investment Funds; Pharmaceutical Industry; United States; New Jersey
Citation
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Dey, Aiyesha, Jonas Heese, and David Allen. "Valeant: Pharma’s Enron? (B)." Harvard Business School Case 126-017, August 2025.

Valeant: Pharma’s Enron? (A)

By: Aiyesha Dey, Jonas Heese and David Allen
  • August 2025 |
  • Case |
  • Faculty Research
This case examines the rapid rise and even faster fall of Valeant Pharmaceuticals International. Led by former McKinsey partner J. Michael Pearson from 2008 to 2016, Valeant abandoned the traditionally research-intensive strategy of most pharmaceutical companies and instead concentrated on generating shareholder returns through serial acquisitions. Although Valeant quickly became a Wall Street favorite, aspects of its accounting practices came under increasing scrutiny, including the ways in which it accounted for its acquisitions, its use of non-GAAP metrics that hugely improved its profitability compared to GAAP, and its revenue recognition and disclosure policies relating to Philidor, a specialty pharmacy that it relied on to increase sales of drugs whose prices it had raised sharply. Exploring each of these aspects of Valeant’s accounts, the case also poses a broader question: should the market really have seen Valeant's bold strategy as a warning?
Keywords: Accounting; Business Earnings; Financial Reporting; Revenue Recognition; Financial Statements; Acquisition; Mergers and Acquisitions; Financial Management; Health; Investment Funds; Pharmaceutical Industry; United States; New Jersey
Citation
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Dey, Aiyesha, Jonas Heese, and David Allen. "Valeant: Pharma’s Enron? (A)." Harvard Business School Case 126-015, August 2025.

The Rise of Advanced Packaging: Kulicke & Soffa's Strategic Crossroads

By: Maria P. Roche, Ram Mudambi and Solon Moreira
  • August 2025 |
  • Case |
  • Faculty Research
In early 2025, semiconductor equipment maker Kulicke & Soffa (K&S) confronts a pivotal strategic decision. As Moore’s Law slows and chiplet-based architectures take center stage, advanced packaging has become the industry's new frontier. K&S, long dominant in wire bonding, must choose between investing in cutting-edge technologies like hybrid bonding to serve top-tier customers, or reinforcing its leadership in the mid-market with proven, high-volume solutions. The case explores the transformation of the semiconductor value chain, the strategic implications of architectural innovation, and how a legacy firm should navigate a technology-driven shift that could either elevate or marginalize its future role.
Keywords: Competitive Strategy; Innovation Strategy; Supply Chain; Disruption; Decision Choices and Conditions; Product Development; Investment; Technological Innovation; Industry Growth; Semiconductor Industry; Manufacturing Industry; Computer Industry; Consumer Products Industry; Auto Industry; Information Technology Industry; Technology Industry; Telecommunications Industry; Singapore; United States; China; South Korea; Taiwan; Japan
Citation
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Roche, Maria P., Ram Mudambi, and Solon Moreira. "The Rise of Advanced Packaging: Kulicke & Soffa's Strategic Crossroads." Harvard Business School Case 726-371, August 2025.
More Publications

Faculty

Josh Lerner
Paul A. Gompers
William A. Sahlman
Robert S. Kaplan
Kenneth A. Froot
Laura Alfaro
Benjamin C. Esty
Robert C. Merton
Andre F. Perold
W. Carl Kester
George Serafeim
Lauren H. Cohen
→See All

Seminars & Conferences

Sep 17
  • 17 Sep 2025
HBS Finance Unit/Harvard Economics Department Seminars
Sylvain Catherine, Wharton
Sep 24
  • 24 Sep 2025
HBS Finance Unit/Harvard Economics Department Seminars
Eduardo Davila, Yale SOM
→Seminars & Conferences

HBS Working Knowlege

    • 12 Nov 2024

    Inside One Startup's Journey to Break Down Hiring (and Funding) Barriers

    Re: Paul A. Gompers
    • 08 Nov 2024

    How Private Investors Can Help Solve Africa's Climate Crisis

    Re: John D. Macomber
    • 15 Oct 2024

    What Sequoia Capital Can Teach Leaders About Sustaining Long-Term Growth

    Re: Jo Tango & Christina M. Wallace
→More Articles

Harvard Business Publishing

    • May 14, 2024
    • Article

    One Way to Help Employees Build Emergency Savings

    By: Timothy Flacke and Peter Tufano
    • September 2025
    • Case

    Cristina Ventura at White Star Capital

    By: Linda A. Hill, Allison J. Wigen, Dave Habeeb and Ruth Page
    • 2017
    • Book

    HBR Guide to Buying a Small Business: Think Big, Buy Small, Own Your Own Company

    By: Richard S. Ruback and Royce Yudkoff
→More Harvard Business Publishing
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