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  Andrea Eisfeldt
  © Nathan Mandell
Professor Andrea Eisfeldt

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.

©2002 Kellogg School of Management, Northwestern University