Laura Brinn
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Fuqua School of Business
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Breeden Named Fellow of American Finance Association
February 12, 2010
Douglas T. Breeden, the William W. Priest Professor of Finance and former Dean of The Fuqua School of Business, was recently elected to membership in the Society of Fellows of the American Finance Association. The Society of Fellows is a group of distinguished finance scholars who select one or two new members annually in recognition of their distinguished contributions to the field of finance.
Breeden's selection was announced at the American Finance Association annual meeting in early January. Breeden, who is also the co-founder and Chairman Emeritus of Smith Breeden Associates, is widely known for his research on consumption and intertemporal asset pricing.
"All of us at Fuqua are delighted that Doug has been recognized in such a tremendous fashion by his peers," said Fuqua Dean Blair Sheppard. "He is an outstanding scholar whose most significant achievements also include building and developing the world-class faculty Fuqua boasts today."
Regarding Breeden's contributions to the field, Robert C. Merton, the John and Natty McArthur University Professor at Harvard Business School, and recipient of the Alfred Nobel Memorial Prize in the Economic Sciences, shared the following comments:
To give proper justice to the significance of Doug Breeden's finance research would fill several pages. Happily, it is almost enough just to say here that he has made deep, fundamental and long-lasting contributions to the field of finance.
His paper, "An Intertemporal Asset Pricing Model with Stochastic Consumption and Investment Opportunities" ranks among the very best theory papers in finance in the last 30 years. Having stood the test of nearly three decades of scrutiny, this paper truly warrants the term "a classic". His "Prices of State-Contingent Claims Implicit in Option Prices" (written jointly with Robert Litzenberger) was an excellent paper when it was published. It shows in a very practical way how one could create, price, and measure the risk of Arrow-like "pure contingent claim" securities using option contracts and the Black-Scholes option pricing theory. It has become even better with the passage of time since the procedure described there is indeed the way real-world practice has since evolved inside some of the largest and most sophisticated financial institutions in the world.
Doug Breeden's research on the fundamental importance of hedging in incomplete markets and the role of contractual agreements in its implementation is another direction of outsized excellence. It has occupied his interest for much of his career; indeed, his 1999 working paper on the subject develops an asymmetric information model for the decisions by firms as to whether to hedge when it is costly. Here, as with his research papers generally, Doug Breeden identified a challenging problem for academic research, which also has important implications for finance practice. Integrated risk management, sometimes called "enterprise risk management," is one of the hottest new areas in financial services, and his work casts light on that subject.
Other areas of finance in which Professor Breeden has exhibited his special knowledge and deep insight include the management and design of financial institutions, particularly banks and thrifts and the pricing and risk measurement of mortgage instruments. In each case, he brings fresh insight, clever analysis, and clarity of exposition.
The quality and significance of what he has done places Doug Breeden as a first-rank researcher in the field. If a citation evaluation of his work were undertaken, I am confident that his count will place him in the top echelon of the field, and it will be orders of magnitude greater than most researchers with five times the number of articles published. It is influence, not page or article count, that matters. Furthermore, Doug Breeden's research is executed with great care. I cannot recall a single instance of finding errors of formulation or analyses in his work. Throughout his career, he has exhibited unusually fine taste in the problems he chose to work on.
Doug Breeden is outstanding at both problem-finding and problem-solving. However, he has not confined his contributions to just his own work. He has always given generously of his time and helpful insights to others doing research in finance. He founded and was the first editor of an outstanding applied research journal, Journal of Fixed Income. He created the prestigious Smith-Breeden Prize to recognize the best research in academic finance each year. His talent of the first rank, combined with his quiet generosity, surely made him a wonderful choice as the newest member of the Society of Fellows of the American Finance Association.