Professor Robin Greenwood presents 'Reflexivity in Credit Markets' for the QCGBF Virtual Seminar Series.
Paper Abstract:
Reflexivity is the idea that investors' biased beliefs affect market outcomes, and that market outcomes, in turn, affect investors' beliefs. We develop a behavioural model of the credit cycle featuring such a two-way feedback loop. In our model, investors form beliefs about firms' creditworthiness, in part by extrapolating past default rates. Investor beliefs influence firms' actual creditworthiness because firms that can refinance maturing debt on favourable terms are less likely to default in the short run—even if fundamentals do not justify investors' generosity. Our model is able to match many features of credit booms and busts, including the imperfect synchronization of credit cycles with the real economy, the negative relationship between past credit growth and the future return on risky bonds, and "calm before the storm" periods in which firm fundamentals have deteriorated but the credit market has not yet turned.
About the Speaker
Robin Greenwood is the George Gund Professor of Finance and Banking at Harvard Business School. At HBS he is the Faculty Director of the Behavioral Finance and Financial Stability project, co-chairs the Business Economics PhD program, and served as Finance Unit Head from 2018-2021. He is a member of the Financial Advisory Roundtable of the Federal Reserve Bank of New York and a Research Associate at the National Bureau of Economics Research.
Robin's research is in behavioural and institutional finance, with a particular focus on "macro-level" market inefficiencies such as asset price bubbles. He has also co-authored research on the role of government and central banks in the debt markets. His research awards include the 2015 Brattle Group Distinguished Paper for an outstanding corporate finance paper published in the Journal of Finance, and the inaugural 2014 Jack Treynor Prize awarded by the Institute for Quantitative Research in Finance.
Robin received a PhD 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.
About the Virtual Seminar Series:
The Qatar Centre for Global Banking and Finance's virtual seminar series provides a forum for researchers at Central Banks and Academics working on central banking issues to present their research. Seminars take place fortnightly and last one hour, including time for questions from attendees. For more information on the next seminar visit:
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