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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

Humana Commits to Value-Based Care

By: V.G. Narayanan, Henry Eyring and David Lane
  • May 2025 |
  • Case |
  • Faculty Research
In late 2023, CEO Bruce Broussard reviewed health insurer Humana’s transformation into a value-based care ecosystem. Under its CenterWell brand, the several millions of members in Humana Medicare Advantage plans now had access to Humana-provided primary care, home care, behavioral health, and mail order pharmacy services. Innovative partnerships with private equity firms had helped finance the acquisition and operations of key CenterWell assets. Broussard and his top team now convened to review the merits of a potential acquisition of a large group of primary care clinics. The discussion centered on how best to build further on and integrate Humana’s successes to date in value-based care delivery.
Keywords: Business Model; Business Units; Financing and Loans; Innovation Strategy; Growth and Development Strategy; Service Operations; Health Industry; United States
Citation
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Narayanan, V.G., Henry Eyring, and David Lane. "Humana Commits to Value-Based Care." Harvard Business School Case 125-013, May 2025.

The Micro-Family Office: Aamir Rehman

By: Lauren Cohen and Sophia Pan
  • May 2025 |
  • Case |
  • Faculty Research
With a successful career and strong academic credentials, Aamir Rehman sought to design a life grounded in autonomy. For him, this meant serving on boards, continuing his professorship, and ensuring a secure and comfortable life for his family. While he didn’t possess a billionaire’s fortune, Rehman had accumulated a net asset value of $8.6 million—an amount he believed was more than sufficient to support his family’s lifestyle, especially as he and his partner continued working in their own professional roles. Rather than outsourcing full control to a private bank or wealth advisor, Rehman established what he referred to as a “Micro-Family Office.” Through this model, he hired part-time professionals to help design and oversee his investment strategy, allowing for personalized oversight without the cost and scale of a traditional family office. As he refined this structure, Rehman noticed that few of his peers (many of whom shared similar career paths) had taken this approach. That prompted a broader question: Was this model replicable and sustainable for others in his position? And more critically, could it withstand economic uncertainty and evolving family needs over time?
Keywords: Family Office; Organization Design; Family And Friends; Family; Balance; Stability; Trends And Opportunities; Wealth Management; Family Business; Investment; Financial Strategy; Personal Finance; Investment Portfolio; Private Equity; Organizational Design; Family and Family Relationships; Happiness; Satisfaction; Balance and Stability; Human Capital; Compensation and Benefits; Economy; Trends; Business Model; New Jersey; United States
Citation
Educators
Related
Cohen, Lauren, and Sophia Pan. "The Micro-Family Office: Aamir Rehman." Harvard Business School Case 225-089, May 2025.

Japan Industrial Partners Powers the Leveraged Buyout of Toshiba

By: Brian K. Baik, Joseph Pacelli and James Barnett
  • April 2025 |
  • Case |
  • Faculty Research
The case explores Japan Industrial Partners (JIP) $14 billion takeover of Toshiba Corporation (Toshiba). JIP was a private equity firm that took over the troubled electronics corporation in late 2023. The deal, which had been labeled one of the largest leveraged buyout (LBOs) in Japanese history, would take one of the most well-known companies off the market as the private equity group sought to restructure it. The case provides an opportunity for students to critically evaluate the intrinsic value of Toshiba and evaluate the alternative bids that Toshiba received from other private equity firms. The case illustrates some of the valuation mechanics of valuing an LBO, which involve adjusting the target company’s capital structure and cost of capital to account for the influx of new debt on the balance sheet.
Keywords: Accounting; International Accounting; Finance; Borrowing and Debt; Management; Management Analysis, Tools, and Techniques; Ownership; Risk and Uncertainty; Strategy; Value; Accounting Industry; Electronics Industry; Energy Industry; Manufacturing Industry; Semiconductor Industry; Asia; Japan
Citation
Educators
Related
Baik, Brian K., Joseph Pacelli, and James Barnett. "Japan Industrial Partners Powers the Leveraged Buyout of Toshiba." Harvard Business School Case 125-055, April 2025.

#FutureFresenius: Implementing a New Strategy to Transform the Company and Advance Patient Care

By: David J. Collis, Benjamin C. Esty and Haisley Wert
  • April 2025 |
  • Case |
  • Faculty Research
In February 2024, Fresenius CEO Michael Sen reflected on the company’s transformation journey from his office in Bad Homburg, Germany. With revenues of €22 billion and a mission to advance patient care, Fresenius had built a strong reputation through decades of acquisitions and dividend growth. However, between 2017 and 2022, the company’s share price dropped over 70% as financial and operational performance sharply declined. When Sen became CEO in October 2022, he recognized the need for a fundamental reset. In response, Sen and the leadership team launched #FutureFresenius, a bold transformation plan that began with changes to the company’s structure, portfolio, and financial framework. By early 2024, key structural changes were in motion, and momentum was building. Looking ahead, the turnaround required deeper cultural shifts and further development of the company’s target operating models. Sen believed in the progress made but faced a critical question: Was Fresenius executing the transformation in the right sequence, at the right speed, and with the right priorities to ensure long-term success? This case study examines the challenges of corporate transformation, the role of leadership in driving change, and the importance of aligning stakeholders in a high-stakes turnaround.
Keywords: Strategic Planning; Corporate Strategy; Transformation; Finance; Leading Change; Organizational Culture; Organizational Structure; Alignment; Health Industry; Germany; United States
Citation
Educators
Purchase
Related
Collis, David J., Benjamin C. Esty, and Haisley Wert. "#FutureFresenius: Implementing a New Strategy to Transform the Company and Advance Patient Care." Harvard Business School Case 725-361, April 2025.

Prices and Concentration: A U-shape? Theory and Evidence from Renewables

By: Michele Fioretti, Junnan He and Jorge Tamayo
  • 2025 |
  • Working Paper |
  • Faculty Research
We show that when firms compete via supply functions, transferring high-cost capacity to the largest, most efficient firm—thereby diversifying its production technologies while increasing concentration—can lower prices by prompting the leader to expand output and competitors to aggressively defend market shares. However, large transfers prove anticompetitive, as sizable capacity differences discourage price undercutting. Exploiting renewable intermittencies in Colombia’s electricity market, where firms are technology-diversified, we consistently find a U-shape relationship between prices and concentration. Counterfactually reallocating 30% of competitors’ high-cost capacities to the leader cuts prices 10%, while larger transfers raise them, revealing how capacity and efficiency influence market power.
Keywords: Diversified Production Technologies; Concentration Levels; Market Power; Supply Function Equilibrium; Hydropower; Energy Transition; Renewable Energy; Price; Competition; Supply and Industry; Energy Industry; Colombia
Citation
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Related
Fioretti, Michele, Junnan He, and Jorge Tamayo. "Prices and Concentration: A U-shape? Theory and Evidence from Renewables." Harvard Business School Working Paper, No. 25-049, April 2025.

JPMorganChase: Leadership in the Age of GenAI

By: Iavor I. Bojinov, Karim R. Lakhani and David Lane
  • April 2025 (Revised April 2025) |
  • Case |
  • Faculty Research
Keywords: Banks and Banking; Governance Controls; Information Technology; AI and Machine Learning; Analytics and Data Science; Cybersecurity; Digital Platforms; Digital Transformation; Information Management; Information Infrastructure; Technology Adoption; Job Cuts and Outsourcing; Knowledge Management; Knowledge Sharing; Leading Change; Growth and Development Strategy; Marketing; Product Development; Performance Improvement; Customization and Personalization; Financial Services Industry; United States
Citation
Educators
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Bojinov, Iavor I., Karim R. Lakhani, and David Lane. "JPMorganChase: Leadership in the Age of GenAI." Harvard Business School Case 325-066, April 2025. (Revised April 2025.)

Performance Capital Flows in DC Pensions

By: Bryan Gutierrez Cortez, Victoria Ivashina and Juliana Salomao
  • 2025 |
  • Working Paper |
  • Faculty Research
Are defined contribution (DC) pension funds' capital flows sensitive to performance? We examine pressures from individual account holders who can switch their pension managers. Using novel data on retirement accounts for nearly 10 million individuals, we analyze switching behavior based on the plan’s risk profile. Switching across managers within the same pension product is not uncommon, and the tendency to change managers rises over time. Capital flows are sensitive to and increase with fund performance. This sensitivity creates pressure on managers, shaping their incentives and portfolio decisions. A quasi-exogenous increase in outflows leads managers to shift toward higher-yielding bond holdings.
Keywords: Investment Funds; Retirement; Risk and Uncertainty; Financial Management; Investment Portfolio; Financial Services Industry
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Gutierrez Cortez, Bryan, Victoria Ivashina, and Juliana Salomao. "Performance Capital Flows in DC Pensions." NBER Working Paper Series, No. 33693, April 2025.

With a Little Help from My Family: Informal Startup Financing

By: Brian K. Baik, Johan Ludvig S. Karlsen and Katja Kisseleva
  • 2025 |
  • Working Paper |
  • Faculty Research
Using Norwegian administrative data, we identify family equity investments in startups and examine their effects on investor returns and firm behavior. Informal investors earn lower returns than external individuals, and the firms they back are less likely to secure institutional financing or achieve a successful exit. These startups also follow more conservative strategies. Instrumental variable estimates suggest that family members do not cause conservative behavior; rather, they select into firms that take fewer risks. Additional tests support altruism as the driving motive. Informal capital is thus a behaviorally distinct source of startup funding, shaped by relational and non-pecuniary objectives.
Keywords: Early Stage Finance; Informal Investment; Household Finance; Risk Taking; Entrepreneurial Finance; Entrepreneurship; Personal Finance; Family and Family Relationships; Business Startups; Investment; Norway
Citation
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Baik, Brian K., Johan Ludvig S. Karlsen, and Katja Kisseleva. "With a Little Help from My Family: Informal Startup Financing." Harvard Business School Working Paper, No. 25-053, April 2025.

Tracking the Short-Run Price Impact of U.S. Tariffs

By: Alberto Cavallo, Paola Llamas and Franco Vazquez
  • 2025 |
  • Working Paper |
  • Faculty Research
This paper examines the short-run impact of the 2025 U.S. tariffs on consumer prices using a unique integration of high-frequency retail pricing data, product-level country-of-origin information, and detailed tariff classifications. By linking daily prices from major U.S. retailers to Harmonized System (HS) codes and import origins, we construct custom price indices that isolate the direct effects of tariff changes across product categories and trading partners. Our analysis reveals rapid pricing responses, though their magnitude remains modest relative to the announced tariff rates and varies by country of origin. Both imported and domestic goods are affected, suggesting broader pricing and supply chain spillovers. These findings offer timely evidence for policymakers, businesses, and consumers navigating the immediate consequences of trade policy changes.
Keywords: Tariffs; Trade; Price; Inflation and Deflation
Citation
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Cavallo, Alberto, Paola Llamas, and Franco Vazquez. "Tracking the Short-Run Price Impact of U.S. Tariffs." Working Paper, April 2025.

Crisis Interventions in Corporate Insolvency

By: Samuel Antill and Christopher Clayton
  • April 2025 |
  • Article |
  • Journal of Finance
We model the optimal resolution of insolvent firms in general equilibrium. Collateral-constrained banks lend to (i) solvent firms to finance investments and (ii) distressed firms to avoid liquidation. Liquidations create negative fire-sale externalities. Liquidations also relieve bank balance-sheet congestion, enabling new firm loans that generate positive collateral externalities by lowering bank borrowing rates. Socially optimal interventions encourage liquidation when firms have high operating losses, high leverage, or low productivity. Surprisingly, larger fire sales promote interventions encouraging more liquidations. We study synergies between insolvency interventions and macroprudential regulation, bailouts, deferred loss recognition, and debt subordination. Our model elucidates historical crisis interventions.
Keywords: Insolvent Firms; Government Intervention; Liquidation; Econometric Models; Insolvency and Bankruptcy; Policy
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Antill, Samuel, and Christopher Clayton. "Crisis Interventions in Corporate Insolvency." Journal of Finance 80, no. 2 (April 2025): 875–910.
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
Stuart C. Gilson
→See All

Seminars & Conferences

May 14
  • 14 May 2025
HBS Finance Unit/Harvard Economics Department Seminars
Amit Seru, Stanford GSB
→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
    • April 2025
    • Case

    #FutureFresenius: Implementing a New Strategy to Transform the Company and Advance Patient Care

    By: David J. Collis, Benjamin C. Esty and Haisley Wert
    • 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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