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- News (5)
- Research (24)
- Multimedia (1)
- Faculty Publications (13)
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- 2022
- Working Paper
Overreaction and Diagnostic Expectations in Macroeconomics
By: Pedro Bordalo, Nicola Gennaioli and Andrei Shleifer
We present the case for the centrality of overreaction in expectations for addressing important challenges in finance and macroeconomics. First, non-rational expectations by market participants can be measured and modeled in ways that address some of the key challenges...
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Keywords:
Overreaction;
Rational Expectations;
Macroeconomics;
Market Participation;
Social Psychology
Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer. "Overreaction and Diagnostic Expectations in Macroeconomics." NBER Working Paper Series, No. 30356, August 2022.
- 2023
- Working Paper
Much Ado About Nothing? Overreaction to Random Regulatory Audits
By: Samuel Antill and Joseph Kalmenovitz
Regulators often audit firms to detect non-compliance. Exploiting a natural experiment in the lobbying industry, we show that firms overreact to audits and this response distorts prices and reduces welfare. Each year, federal regulators audit a random sample of...
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Antill, Samuel, and Joseph Kalmenovitz. "Much Ado About Nothing? Overreaction to Random Regulatory Audits." Working Paper, August 2023.
- Article
A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets
Hong, Harrison, and Jeremy Stein. "A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets." Journal of Finance 54, no. 6 (December 1999).
- 07 Apr 2003
- What Do You Think?
Should Global Business Initiatives Be Devalued?
should be devalued. On the one hand, one might argue that such discussions are an overreaction to current events, that nations have become so interdependent and multinational business organizations so vital to the world's economy that...
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Keywords:
by James Heskett
- Research Summary
Information, Coordination and the Industrialisation of Countries (with Markus Reisinger)
The industrialization process of a country is often plagued by a failure to coordinate firms' investment decisions. Using the Global Games approach we can solve this coordination problem and eliminate the problem of multiple equilibria. We show how appropriate...
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- 2021
- Working Paper
Real Credit Cycles
By: Pedro Bordalo, Nicola Gennaioli, Andrei Shleifer and Stephen J. Terry
We incorporate diagnostic expectations, a psychologically founded model of overreaction to news, into a workhorse business cycle model with heterogeneous firms and risky debt. A realistic degree of diagnosticity, estimated from the forecast errors of managers of U.S....
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Bordalo, Pedro, Nicola Gennaioli, Andrei Shleifer, and Stephen J. Terry. "Real Credit Cycles." NBER Working Paper Series, No. 28416, January 2021.
- December 2017 (Revised May 2018)
- Case
Amazon Buys Whole Foods
By: José B. Alvarez, David Lane and Joni Coughlin
The June 2017 news that e-commerce giant Amazon was paying $13.7 billion for organic supermarket chain Whole Foods precipitated a broad sell-off in the shares of grocery retailers and suppliers. Behind the precipitous declines lay recognition that Amazon’s bold move...
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Keywords:
Amazon;
Whole Foods;
Grocery;
Grocery Delivery;
Mergers & Acquisitions;
Business Models;
Food Value Chain;
Agribusiness;
Mergers and Acquisitions;
Operations;
Competitive Strategy;
E-commerce;
Agriculture and Agribusiness Industry;
Retail Industry;
Web Services Industry;
Food and Beverage Industry;
United States
Alvarez, José B., David Lane, and Joni Coughlin. "Amazon Buys Whole Foods." Harvard Business School Case 518-056, December 2017. (Revised May 2018.)
- September 2018
- Article
Asset Price Dynamics in Partially Segmented Markets
By: Robin Greenwood, Samuel G. Hanson and Gordon Y. Liao
We develop a model in which capital moves quickly within an asset class but slowly between asset classes. While most investors specialize in a single asset class, a handful of generalists can gradually reallocate capital across markets. Upon the arrival...
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Greenwood, Robin, Samuel G. Hanson, and Gordon Y. Liao. "Asset Price Dynamics in Partially Segmented Markets." Review of Financial Studies 31, no. 9 (September 2018): 3307–3343. (Internet Appendix Here.)
- December 1989
- Article
On the Consistency of Short-Run and Long-Run Exchange Rate Expectations
By: K. A. Froot and T. Ito
This paper examines whether short-term exchange rate expectations 'overreact' by comparing them with long-term expectations. We develop a set of nonlinear restrictions linking expectations at different forecast horizons. The restrictions impose consistency, a property...
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Keywords:
Currencies;
Exchange Rates;
International Macroeconomics;
Monetary Policy;
Currency Controls;
Fixed Exchange Rates;
Floating Exchange Rates;
Currency Bands;
Currency Zones;
Currency Areas;
Rational Expectations;
Asset Pricing
Froot, K. A., and T. Ito. "On the Consistency of Short-Run and Long-Run Exchange Rate Expectations." Journal of International Money and Finance 8, no. 4 (December 1989): 487–510. (Revised from NBER Working Paper No. 2577, May 1988.)
- October 1992 (Revised August 2005)
- Background Note
Estate Freeze
By: Henry B. Reiling
The so called estate freeze is a classic estate planning and recapitalization practice. It seeks to reconcile the multiple human and business considerations associated with transferring operating control and the future increases in the value of a family dominated...
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Keywords:
Personal Finance;
Governing Rules, Regulations, and Reforms;
Laws and Statutes;
Financial Services Industry;
United States
Reiling, Henry B. "Estate Freeze." Harvard Business School Background Note 293-063, October 1992. (Revised August 2005.)
- 05 Dec 2017
- First Look
First Look at New Research and Ideas, December 5, 2017
projects in the wake of this type of information. I also find evidence that firms overreact to failure news from closely related competitor projects. Finally, I investigate project- and firm-level characteristics that drive persistent...
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Keywords:
Sean Silverthorne
- 2023
- Working Paper
How People Use Statistics
By: Pedro Bordalo, John J. Conlon, Nicola Gennaioli, Spencer Yongwook Kwon and Andrei Shleifer
We document two new facts about the distributions of answers in famous statistical problems: they are i) multi-modal and ii) unstable with respect to irrelevant changes in the problem. We offer a model in which, when solving a problem, people represent each hypothesis...
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Bordalo, Pedro, John J. Conlon, Nicola Gennaioli, Spencer Yongwook Kwon, and Andrei Shleifer. "How People Use Statistics." NBER Working Paper Series, No. 31631, August 2023.
- August 2021
- Article
Rate-Amplifying Demand and the Excess Sensitivity of Long-Term Rates
By: Samuel G. Hanson, David O. Lucca and Jonathan H. Wright
Long-term nominal interest rates are surprisingly sensitive to high-frequency (daily or monthly) movements in short-term rates. Since 2000, this high-frequency sensitivity has grown even stronger in U.S. data. By contrast, the association between low-frequency changes...
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Hanson, Samuel G., David O. Lucca, and Jonathan H. Wright. "Rate-Amplifying Demand and the Excess Sensitivity of Long-Term Rates." Quarterly Journal of Economics 136, no. 3 (August 2021): 1719–1781.
- 21 Feb 2005
- Op-Ed
Is Business Management a Profession?
risk taking that have contributed so much to the success of American capitalism. A self-interested, self-indulgent corporate leadership is not inevitable. Legal and regulatory overreaction to the crisis currently afflicting American...
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- 01 Dec 2003
- What Do You Think?
Is This the Twilight Era for the Managed Mutual Fund?
appear to have been formed over a number of years? Or is all of this just an overreaction to phenomena that will recede in perceived importance to investors and money managers alike as other concerns crowd them out in our collective...
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Keywords:
by James Heskett
- 05 May 2003
- What Do You Think?
Is This a Golden Era for Marketing Productivity?
productivity? Or are tendencies to place our brand, product, and service futures in the hands of so few an overreaction to the perceived waste resulting from traditional approaches to the design of marketing strategies? What do you think?
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Keywords:
by James Heskett
- 15 May 2020
- Research & Ideas
Find Your Pragmatic Path through Radical Uncertainty
thus making our lives and those of others as orderly as possible. The first imperative is to resist the temptation, which radical uncertainty exacerbates, to panic. While hoarding paper products may seem like a “safe” option for us, it is likely an View Details
- 06 Apr 2015
- Research & Ideas
After Germanwings, More Attention Needed on Employee Mental Health
the one hand, it focuses tremendous attention on mental health in the workplace. " But an overreaction to the issue could result in costly ramp-ups of mental health screening of questionable effectiveness. Such screenings may do more harm...
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- 13 May 2019
- Research & Ideas
The Unexpected Way Whistleblowers Reduce Government Fraud
existed under the False Claims Act since the Civil War. “What we’re showing is that this program provides a good way for whistleblowers to bring information to the attention of the government, and that the government is not overreacting...
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- 21 Nov 2017
- First Look
First Look at New Research and Ideas, November 21, 2017
flows between markets and prices of risk become more closely aligned. While prices in the directly impacted market initially overreact to the supply shock, we show that prices in related asset classes underreact under plausible...
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Keywords:
Sean Silverthorne