Foundation for the Advancement of
Research in Financial Economics
Press Release Announcing the Second Ross Prize
Foundation for the Advancement of Research in Financial Economics Awards Second $100,000 Academic Prize
Economics Scholars Nobuhiro Kiyotaki and John Moore Recognized
December 10, 2010.
Stanford,
CA --- The Foundation for the Advancement of Research in Financial
Economics (FARFE), a consortium of finance academics and practitioners
from around the world, has awarded its second Stephen A. Ross Prize in
Financial Economics to the paper “Credit Cycles” by Nobuhiro Kiyotaki
of Princeton University and John Moore of the University of Edinburgh
and London School of Economics and Political Science. The paper was
published in the Journal of Political Economy in 1997. The
insights of the paper and the literature that followed it have been
essential in understanding the recent financial crisis and the “lost
decade” in Japan.
The Ross Prize is given biennially to research published in the
previous fifteen years. The first prize was awarded in 2008 to Hayne
Leland of the University of California at Berkeley for his 1994 paper
on corporate debt pricing and capital structure. FARFE established the
prize three years ago to recognize and encourage significant
contributions to research in financial economics.
In the award winning paper, Kiyotaki and Moore show how small shocks to
the economy can be amplified by credit conditions and give rise to
major fluctuations in the output and prices. If holders of assets such
as real estate or complex mortgage securities are bound by collateral
constraints, a small decline in the price of these assets will
precipitate a spiral of declining prices by forcing the holders to sell
assets to meet their collateral constraints, further forcing down
prices and leading to a further tightening of the collateral
constraint, and to a reduction in investment and output. This also
implies that credit conditions are a major source of risk for asset
pricing in the economy, and it explains the empirical evidence that
stocks that are exposed to systematic liquidity risk earn higher rates
of return to compensate. This landmark paper has opened up an entire
research agenda on the amplification role of asset values and brings
important insights to the policy debate on fair value accounting for
financial institutions which alters the nature of the collateral
constraint that they face.
Jean Tirole, Professor and Chairman of the Board of Directors at the
Toulouse School of Economics, said “The recognition of Nobu Kiyotaki’s
and John Moore’s seminal “Credit Cycle” paper by the prestigious Ross
prize in financial economics is music to the ears of the many
economists, including myself, who view it as an important building
block of the new literature on macroeconomics with imperfect capital
markets. This landmark paper opened up an entire research agenda on the
amplification role of asset values and brought insights to the
economics contribution to the policy debate on fair value accounting.”
The prize winners, Nobuhiro Kiyotaki and John
Moore, said. “We are surprised and honored to receive the Ross prize.
We would like to continue our investigation into the interaction
between finance and aggregate economic activity in the tradition of
Professor Ross.”
The paper was selected from more than 100 papers
published in the last 15 years that were considered by the prize
committee. “The Kiyotaki and Moore paper received the award both
because of its radical new insights for asset pricing that are only now
beginning to be absorbed and because of its relevance for recent events
in the capital markets” said Michael Brennan, the chair of the prize
committee, and Emeritus Professor Finance at The Anderson School of
Management at UCLA.
In addition to Michael Brennan, the prize committee included: Patrick
Bolton from Columbia University; Markus Brunnermeier from Princeton
University; Francesca Cornelli from London Business School; Itay
Goldstein from the University of Pennsylvania; Martin Lettau from the
University of California at Berkeley; and Paul Pfleiderer from Stanford University.
Links
Citation for Second Ross Prize
Past Winners
2008 Prize: To "Corporate Debt Value, Bond Covenants, and Optimal Capital Structure," by Hayne Leland.
The Stephen A. Ross Prize in Financial Economics
| The initiative to establish FARFE came from academics and practitioners who were former students of Stephen A. Ross. To encourage research that exemplifies his focus on fundamental research, and to celebrate the influence he has had on financial economics and on the lives of his students, FARFE has established the Stephen A. Ross Prize in Financial Economics. This biennial award of $100,000 honors a paper in financial economics selected from all papers published over the prior 15 years in any finance or economics outlet. The winning paper must either develop or test a theory in financial economics. The inaugural prize was awarded in 2008 to Hayne Leland for his 1994 Journal of Finance paper "Corporate Debt Value, Bond Covenants, and Optimal Capital Structure." | About Stephen
A. Ross History of the Stephen A. Ross Prize |