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News & Events

Professor Andrea Eisfeldt wins prestigious Smith Breeden Award

By Deborah Leigh Wood

1/1/2005 - The American Finance Association recently awarded a Smith Breeden Distinguished Paper Award to Andrea Eisfeldt, assistant professor of finance at the Kellogg School. Her paper, “Endogenous Liquidity in Asset Markets,” appeared as the lead article in the February 2004 issue of the association’s The Journal of Finance.

"I am very honored to have received a Smith Breeden Distinguished Paper award for my research on liquidity,” said Eisfeldt, who has been teaching at Kellogg since 2000. Since 1989, Smith Breeden Associates, an investment management firm headquartered in Chapel Hill., N.C., has been funding the awards — two for Distinguished Paper and one First Place. Winners of the Distinguished Paper Award receive $5,000.

"The Journal of Finance receives a thousand article submissions every year, and being chosen as one of the three best of these is both a great honor and a reflection of great accomplishment,” said Robert Magee, Kellogg School senior associate dean of faculty and research. “We’re very pleased that Andrea has received this recognition.”

Eisfeldt, who has a doctorate in economics from the University of Chicago, explores in her paper why market liquidity varies over the business cycle, and specifically why people are reluctant to trade in bad economic times — a heretofore unanswered question.

Eisfeldt explains that liquidity dries up in bad times because that’s when investors are unwilling to take risks. “Risk taking is key to a liquid market,” she said in a recent interview. “When people take risks, they are forced to trade more because they expose themselves to bigger shocks. These shocks are good because they lead people who otherwise would not sell assets to sell, and this higher volume improves liquidity.”

Eisfeldt said she thinks the paper has caught people’s attention because it links liquidity to the macroeconomy, and there is “clearly a strong link between how the economy is doing and how well markets function.”

Investors and firms hold large quantities of liquid assets and earn a low return on these assets, she said. “So, why do investors care so much about liquidity? Because it tends to dry up just when we need it most,” she said.
Eisfeldt’s paper has garnered significant attention since its publication, and it will prove to have a big influence in finance research, said Michael J. Fishman, chair of the Kellogg School finance department, the Norman Strunk Distinguished Professor of Financial Institutions and a past Smith Breeden Award recipient.

"Andrea is one of the leaders in the field of market liquidity and a talented young scholar,” Fishman said. “The award is well deserved. I fully expect more accolades to follow. We’re proud to add another Smith Breeden to the finance faculty.”

In addition to Fishman, past Smith Breeden winners in the Kellogg finance department are Kent Daniel, the John L. and Helen Kellogg Distinguished Professor of Finance; Deborah Lucas, the Donald C. Clark/Household International Distinguished Professor of Finance; Robert L. McDonald, the Erwin Plein Nemmers Distinguished Professor of Finance; Mitchell Petersen, the Glen Vasel Associate Professor of Finance; Todd Pulvino, associate professor of finance; and Artur Raviv, the Alan E. Peterson Distinguished Professor of Finance.