Robert McDonald
Robert McDonald

FINANCE
Senior Associate Dean: Faculty and Research
Erwin P. Nemmers Professor of Finance

Print Overview

Robert McDonald is Erwin P. Nemmers Professor of Finance. He has been a faculty member since 1984 and also served as department chair. 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 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, a text published in 2002 by Addison Wesley. He received a BA in Economics from the University of North Carolina and a Ph.D. in Economics from MIT. In 2010 he was elected a Director of the American Finance Association.

He is the author of Derivatives Markets, a text now in its second edition, and Fundamentals of Derivatives Markets.



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

Academic Positions
Co-Director, Kellogg School of Management, Northwestern University, 2006-present
Acting Director of Kellogg Computer Services, Kellogg School of Management, Northwestern University, 1993-present
Erwin P. Nemmers Distinguished Professor of Finance, Kellogg School of Management, Northwestern University, 1991-present
Northwestern University Program Review Council, Kellogg School of Management, Northwestern University, 2002-2005
Finance Department Chair, Kellogg School of Management, Northwestern University, 1991-1994
Associate Professor, Kellogg School of Management, Northwestern University, 1987-1991
Visiting Associate Professor, Graduate School of Business, University of Chicago, 1989-1990
Assistant Professor, Kellogg School of Management, Northwestern University, 1984-1987
Assistant Professor, School of Management, Boston University, 1981-1984

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

Editorial Positions
Associate Editor, Journal of Financial and Quantitative Analysis, 1992-Present
Associate Editor, North American Journal of Economics , 2010-present
Co-Editor, Review of Financial Studies, 2002-2006
Associate Editor, Financial Management, 2000-2003
Associate Editor, Journal of Finance, 2000-2003
Associate Editor, Review of Financial Studies, 2000-2002
Associate Editor, Management Science, 1992-1997

 
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

Articles
McDonald, Robert. 2013. Contingent Capital With a Dual Price Trigger. Journal of Financial Stability. 9(2): 230-241.
Heaton, John, Deborah Lucas and Robert McDonald. 2010. Is Mark-to-Market Accounting Destabilizing? Analysis and Implications for Policy. Journal of Monetary Economics. 57(1): 64-75.
Lucas, Deborah and Robert 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. 2006. The Role of Real Options In Capital Budgeting: Theory and Practice. Journal of Applied Corporate Finance. 18(2): 28-39.
McDonald, Robert. 2004. The Tax (Dis)Advantage Of A Firm Issuing Options On Its Own Stock. Journal of Public Economics. 88(5): 925-955.
McDonald, Robert. 2001. Cross-Border Investing with Tax Arbitrage: the Case of German Dividend Tax Credits. Review of Financial Studies. 14(3): 617-657.
McDonald, Robert and Mark D. Schroder. 1998. A parity result for American options. Journal of Computational Finance. 1(3): 5-13.
McDonald, Robert and Deborah Lucas. 1998. Shareholder Heterogeneity, Adverse Selection, and Payout Policy. Journal of Financial and Quantitative Analysis. 33(2): 233-253.
Lucas, Deborah and Robert 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 McDonald. 1992. Equity Issues with Time-Varying Asymmetric Information. Journal of Financial and Quantitative Analysis. 27(3): 397-417.
Korajczyk, Robert, Deborah Lucas and Robert 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 McDonald. 1990. Equity Issues and Stock Price Dynamics. Journal of Finance. 45(4): 1019-1043.
May, Richard C. , Robert 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 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 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 McDonald. 1985. Debt Policy and the Rate of Return Premium to Leverage. Journal of Financial and Quantitative Analysis. 20(4): 479-499.
McDonald, Robert 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 McDonald. 1984. How big is the tax advantage to debt. Journal of Finance. 39(3): 841-853.
McDonald, Robert 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 McDonald. 1984. Why haven't nominal rates declined?. Financial Analysts Journal. 40(2): 16-27.
McDonald, Robert 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. 1983. Government debt and private leverage: An extension of the Miller Theorem. Journal of Public Economics. 22(3): 303-325.
McDonald, Robert. 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 McDonald. 1979. Inflation and the financing of New England commercial banks in the 1980's. New England Economic Review.
Working Papers
McDonald, Robert and Thomas A. Rietz. The Rating Effect: Stars and Asset Allocation.
McDonald, Robert. 2011. Is it Optimal to Accelerate the Payment of Income Tax on Share-Based Compensation?.
McDonald, Robert. 2004. Is it Optimal to Accelerate the Payment of Income Tax on Share-Based Compensation?.
Brennan, Thomas and Robert McDonald. Deconstructing the Taxation of Packaged Financial Strategies.
Book Chapters
McDonald, Robert. 2013. "Liquidity Mismatch Measurement." edited by Markus K. Brunnermeier and Arvind Krishnamurthy, Chicago: University of Chicago Press.
Lucas, Deborah and Robert 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. 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 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.
Hagerty, Kathleen and Robert McDonald. 1996. "Brokerage, Market Fragmentation, and Security Market Regulation: Authors' Reply." In Industrial Organization and Regulation of the Securities Industry, edited by Andrew W. Lo, 60-62. Chicago: NBER, University of Chicago Press.
Korajczyk, Robert, Deborah Lucas and Robert 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 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.
Books
McDonald, Robert. 2009. Derivatives Markets. Upper Saddle River, NJ: Pearson/Prentice Hall, 3rd.
McDonald, Robert. 2008. Fundamentals of Derivatives Markets. Boston, MA: Addison-Wesley.
McDonald, Robert. 2005. Derivatives Markets. Addison-Wesley.
McDonald, Robert. 2002. Derivatives Markets. Boston, MA: Addison-Wesley.
Cases
McDonald, Robert. 1996. Speculating on an acquisition with options: Rjr nabisco. Casenet, Southwestern Publishing.

 
Print Teaching
Teaching Interests
Futures and options, effects of taxation on decision-making
Full-Time / Part-Time MBA
Derivatives Markets I (FINC-465-0)

This course counts toward the following majors: Analytical Finance, Finance.

This course covers the use and pricing of forwards and futures, swaps and options. Specific topics include strategies for speculation and risk management, no-arbitrage pricing for forward contracts, the binomial and Black-Scholes option pricing models and applications of pricing models in other contexts.

Derivatives Markets II (FINC-467-0)

This course counts toward the following majors: Analytical Finance, Finance.

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.