Robin Greenwood
Robin is the George Gund Professor of Finance and Banking. His research investigates market inefficiency at the macro-level, with a special emphasis on debt markets. Professor Greenwood received a Ph.D. from Harvard in Economics, and B.S. degrees in Economics and Mathematics at MIT. He has taught in both years of the MBA curriculum as well as the PhD. program. He was the chair of the Finance for Senior Executives Program, and developed the Behavioral and Value Investing Elective Course. Since Spring 2009, he has been teaching Behavioral and Value Investing, a second year elective. He is a Faculty Research Associate at the National Bureau of Economic Research and an associate editor at the Review of Financial Studies.
Abstract: We study the returns to owning dry bulk cargo ships. Ship earnings exhibit a high degree of mean reversion, driven by industry participants’ competitive investment responses to shifts in demand. Ship prices are far too volatile given the mean reversion in earnings. We show that high current ship earnings are associated with high second hand ship prices and heightened industry investment in fleet capacity, but forecast low future returns. We propose and estimate a behavioral model that can account for the evidence. In our model, firms over-extrapolate exogenous demand shocks and partially neglect the endogenous investment responses of their competitors. Formal estimation of the model confirms that both types of expectational errors are needed to account for our findings.
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