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Prof.
Eisfeldt wins prestigious Smith Breeden Award
by Deborah Leigh Wood
The American
Finance Association recently presented 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.
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.
Eisfeldt,
who joined Kellogg in 2000 and has a doctorate in economics
from the University of Chicago, explores in her paper why
market liquidity varies over the business cycle. She solves
the heretofore-unanswered question of why people are reluctant
to trade in bad economic times.
Liquidity
dries up in such times, Eisfeldt said, because investors are
unwilling to take risks. "Risk taking is key to a liquid
market. When people take risks, they are forced to trade more
because they expose themselves to bigger shocks," she said.
"These shocks are good because they lead people who otherwise
would not sell assets to sell, and this higher volume improves
liquidity."
Eisfeldt thinks her 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 care
about liquidity, she said, "because it tends to dry up
just when we need it most."
With her paper, Eisfeldt joins seven other
Kellogg School finance professors who have also won Smith
Breeden awards in recent years.
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