Robert McDonald
Robert L. McDonald

Erwin P. Nemmers Professor of Finance

Print Overview

Robert McDonald is Erwin P. Nemmers Professor of Finance. He has been a faculty member at Kellogg since 1984 and also served as Finance department chair and and Senior Associate Dean for Faculty and Research. Before joining Kellogg, he was a faculty member at Boston University and has been a visiting professor at the University of Chicago. He has taught courses in derivatives, corporate finance, and taxation.

Professor McDonald's research interests include corporate finance, taxation, derivatives, and applications of option pricing theory to corporate investments. Several of his papers have won research awards, including the Graham and Dodd Scroll from the Financial Analyst's Federation, the Iddo Sarnat Prize from the Journal of Banking and Finance, the Smith Breeden Prize from the Journal of Finance, and the Review of Financial Studies Prize from the Review of Financial Studies.

Professor McDonald is a research associate of the National Bureau of Economic Research, a former director of the American Finance Association, Former Co-Editor of the Review of Financial Studies, and has served on a number of editorial boards, including those for the Journal of Finance, Management Science, and the Journal of Financial and Quantitative Analysis. He is the author of Derivatives Markets, 3e, a text published in 2013, and Fundamentals of Derivatives Markets, published in 2008. He received a BA in Economics from the University of North Carolina and a Ph.D. in Economics from MIT.

Areas of Expertise
Corporate Bankruptcy
Corporate Capital Structure
Corporate Finance
Debt-Equity Choice
Derivative Securities and Markets (Futures, Options, Commodities)
Financial Engineering
Payout Policy (Dividends, Repurchases)
Real Options (Investments)
Risk Management

Print Vita
PhD, 1982, Economics, Massachusetts Institute of Technology
BA, 1975, Economics, University of North Carolina, Highest Honors

Academic Positions
Senior Associate Dean, Faculty and Research, Kellogg School of Management, Northwestern University, 2013-present
Erwin P. Nemmers Distinguished Professor of Finance, Kellogg School of Management, Northwestern University, 1991-present
Faculty senate, Finance Department representative, Kellogg School of Management, Northwestern University, 2010-2013
Acting Director, Guthrie Center for Real Estate, Kellogg School of Management, Northwestern University, 2008-2009
Co-director, Financial Markets Research Center, Kellogg School of Management, Northwestern University, 2006-2011
Northwestern University Program Review Council, Kellogg School of Management, Northwestern University, 2002-2005
Acting Director of Kellogg Computer Services, Kellogg School of Management, Northwestern University, 1993-1995
Finance Department Chair, Kellogg School of Management, Northwestern University, 1991-1994
Visiting Associate Professor, Graduate School of Business, University of Chicago, 1989-1990
Associate Professor, Kellogg School of Management, Northwestern University, 1987-1991
Assistant Professor, Kellogg School of Management, Northwestern University, 1984-1987
Assistant Professor, School of Management, Boston University, 1981-1984

Honors and Awards
Elected Director of the American Finance Association, 2010-2013
Sidney J. Levy Teaching Award, Kellogg School of Management, 2006-2007, 2001-2002

Print Research
Research Interests
Corporate finance, derivative securities and hedging, the role of asymmetric information in corporate fund-raising, application of option pricing theory to corporate decision-making

McDonald, Robert L. and Anna Paulson. 2015. AIG in Hindsight. Journal of Economic Perspectives. 29(2): 81-106.
McDonald, Robert L.. 2013. Contingent Capital With a Dual Price Trigger. Journal of Financial Stability. 9(2): 230-241.
Heaton, John, Deborah Lucas and Robert L. McDonald. 2010. Is Mark-to-Market Accounting Destabilizing? Analysis and Implications for Policy. Journal of Monetary Economics. 57(1): 64-75.
McDonald, Robert L.. 2006. The Role of Real Options In Capital Budgeting: Theory and Practice. Journal of Applied Corporate Finance. 18(2): 28-39.
Lucas, Deborah and Robert L. McDonald. 2006. An Options-Based Approach to Evaluating the Risk of Fannie Mae and Freddie Mac. Journal of Monetary Economics. 53(1): 155-176.
McDonald, Robert L.. 2004. The Tax (Dis)Advantage Of A Firm Issuing Options On Its Own Stock. Journal of Public Economics. 88(5): 925-955.
McDonald, Robert L.. 2001. Cross-Border Investing with Tax Arbitrage: the Case of German Dividend Tax Credits. Review of Financial Studies. 14(3): 617-657.
McDonald, Robert L. and Deborah Lucas. 1998. Shareholder Heterogeneity, Adverse Selection, and Payout Policy. Journal of Financial and Quantitative Analysis. 33(2): 233-253.
McDonald, Robert L. and Mark D. Schroder. 1998. A parity result for American options. Journal of Computational Finance. 1(3): 5-13.
Korajczyk, Robert, Deborah Lucas and Robert L. McDonald. 1992. Equity Issues with Time-Varying Asymmetric Information. Journal of Financial and Quantitative Analysis. 27(3): 397-417.
Lucas, Deborah and Robert L. McDonald. 1992. Bank Financing and Investment Decisions with Asymmetric Information about Loan Quality. RAND Journal of Economics. 23(1): 86-105.
Korajczyk, Robert, Deborah Lucas and Robert L. McDonald. 1991. The Effect of Information Releases on the Pricing and Timing of Equity Issues. Review of Financial Studies. 4(4): 685-708.
Lucas, Deborah and Robert L. McDonald. 1990. Equity Issues and Stock Price Dynamics. Journal of Finance. 45(4): 1019-1043.
May, Richard C., Robert L. McDonald and Bradley Van Horn. 1990. Valuation issues in leveraged ESOPs. Journal of Employee Ownership Law and Finance. 2(1): 99-121.
Lucas, Deborah and Robert L. McDonald. 1987. Bank Portfolio Choice with Private Information About Loan Quality: Theory and Implications for Regulation. Journal of Banking and Finance. 11(3): 473-497.
McDonald, Robert L. and Daniel Siegel. 1986. The Value of Waiting to Invest. Quarterly Journal of Economics. 101(4): 707-727.
Kane, Alex, Alan J. Marcus and Robert L. McDonald. 1985. Debt Policy and the Rate of Return Premium to Leverage. Journal of Financial and Quantitative Analysis. 20(4): 479-499.
McDonald, Robert L. and Daniel Siegel. 1985. Investment and the Valuation of Firms When There Is an Option to Shut-Down. International Economic Review. 26(2): 331-349.
Kane, Alex, Alan J. Marcus and Robert L. McDonald. 1984. How big is the tax advantage to debt. Journal of Finance. 39(3): 841-853.
McDonald, Robert L. and Daniel Siegel. 1984. Option Pricing When the Underlying Asset Earns a Below-Equilibrium Rate of Return. Journal of Finance. 39(1): 261-265.
Bodie, Zvi, Alex Kane and Robert L. McDonald. 1984. Why haven't nominal rates declined?. Financial Analysts Journal. 40(2): 16-27.
McDonald, Robert L. and Daniel R. Siegel. 1983. A Note on the Design of Commodity Options Contracts: A Comment. Journal of Futures Markets. 3(1): 23-26.
McDonald, Robert L.. 1983. Government debt and private leverage: An extension of the Miller Theorem. Journal of Public Economics. 22(3): 303-325.
McDonald, Robert L.. 1982. Review of "Options Pricing and Strategies in Investing" by Richard M. Bookstaber. Sloan Management Review. 24(1): 64-66.
Kimball, Ralph C. and Robert L. McDonald. 1979. Inflation and the financing of New England commercial banks in the 1980's. New England Economic Review.
Working Papers
McDonald, Robert L.. 1992. Speculating on a Tender Offer Using Options: The Case of RJR Nabisco.
McDonald, Robert L. and Thomas A. Rietz. 2014. Ratings and Asset Allocation: An Experimental Analysis.
McDonald, Robert L.. 2005. Is it Optimal to Accelerate the Payment of Income Tax on Share-Based Compensation?.
Brennan, Thomas Joseph and Robert L. McDonald. 2014. Deconstructing the Taxation of Packaged Financial Strategies.
Book Chapters
McDonald, Robert L.. 2014. "Measuring Margin." In Risk Topography: Systemic Risk and Macro Modelling, edited by Markus K. Brunnermeier and Arvind Krishnamurthy, 65-82. Chicago: University of Chicago Press.
Lucas, Deborah and Robert L. McDonald. 2010. "Valuing Government Guarantees: Fannie and Freddie Revisited." In Measuring and Managing Federal Financial Risk, edited by Deborah Lucas., Chicago: University of Chicago Press.
McDonald, Robert L.. 2000. "Real Options and Rules of Thumb in Capital Budgeting." In Project Flexibility, Agency, and Competition, edited by Michael Brennan and Lenos Trigeorgis, 13-33. Oxford, UK: Oxford University Press.
Hagerty, Kathleen and Robert L. McDonald. 1996. "Brokerage, Market Fragmentation and Security Market Regulation." In Industrial Organization and Regulation of the Securities Industry, edited by Andrew W. Lo, 35-56. Chicago: NBER, University of Chicago Press.
Korajczyk, Robert, Deborah Lucas and Robert L. McDonald. 1990. "Understanding Stock Price Behavior Around the Time of Equity Issues." In Asymmetric Information, Corporate Finance, and Investment, edited by R. Glenn Hubbard, Chicago, IL: University of Chicago Press.
Bodie, Zvi, Alex Kane and Robert L. McDonald. 1985. "Inflation and the role of bonds in investor portfolios." In Corporate Capital Structures in the United States, edited by B.M. Friedman, 167-196. Chicago: University of Chicago Press.
Brennan, Thomas Joseph and Robert L. McDonald. "The Problematic Delta Test for Dividend Equivalents." Tax Notes, January.
McDonald, Robert L.. 2013. Derivatives Markets. Pearson/Addison-Wesley, 3.
McDonald, Robert L.. 2009. Derivatives Markets. Upper Saddle River, NJ: Pearson/Prentice Hall, 3rd.
McDonald, Robert L.. 2008. Fundamentals of Derivatives Markets. Boston, MA: Addison-Wesley.
McDonald, Robert L.. 2006. Derivatives Markets. Addison-Wesley, 2nd.
McDonald, Robert L.. 2002. Derivatives Markets. Boston, MA: Addison-Wesley.
McDonald, Robert L.. 1996. Speculating on an acquisition with options: Rjr nabisco. Casenet, Southwestern Publishing.

Print Teaching
Teaching Interests

Derivatives, effects of taxation on decision-making

Full-Time / Evening & Weekend MBA
Data Exploration (DECS-922-5)
The ability to quickly and efficiently manipulate and analyze real-world data has become a basic skill. In this course we will use R --- which has become a standard tool for bridging the last mile to the corporate data center --- to explore the basic elements of data management and exploration. Specifically, we will discuss data acquisition and cleaning; data manipulation, including subsetting, summaries, and the rationale for long and wide formats; data normalization; visualization; basic statistical analysis; reproducibility; and reporting. We will emphasize the use of the R packages dplyr for data manipulation and ggplot for visualization, and illustrate the use of R to query SQL data servers. The only prerequisite for the course is an interest in data analysis. No previous experience with R or SQL is assumed and you should acquire basic fluency in R in the course. While not required, students are encouraged to come to the course with their own data projects in mind.

Derivative Markets II (FINC-467-0)
This course studies the foundations of derivatives pricing and modern risk management practice. Topics include delta-hedging, the lognormal distribution, Monte Carlo valuation, the Black-Scholes equation, exotic options, fixed income derivatives and risk assessment. Extensive use is made of spreadsheet-based valuation models. This course presumes that students already understand binomial pricing and the Black-Scholes formula.