Douglas Diamond wins Morgan Stanley-AFA award for financial economics research

Douglas W. Diamond, a professor at the University of Chicago Booth School of Business who studies financial intermediaries, financial crises, and liquidity, has received the 2012 Morgan Stanley-American Finance Association Award for Excellence in Finance.

Diamond, the Merton H. Miller Distinguished Service Professor of Finance and a Richard N. Rosett Faculty Fellow, will donate $175,000 of the $200,000 cash prize to the Chicago Booth Fama-Miller Center for Research in Finance. The remaining $25,000 will be donated to the Foundation for the Advancement of Research in Financial Economics.

The Morgan Stanley-AFA award was created in 2008 and is given once every two years in recognition of an individual’s career achievements and leadership in financial economics research. The two previous winners also came from Chicago Booth. Eugene Fama, the Robert R. McCormick Distinguished Service Professor of Finance, won in 2008; and Michael Jensen, one of Fama’s PhD students, won in 2010. Jensen received his Booth degree in 1968 and is a professor emeritus at Harvard University.

Diamond received the award Jan. 7, 2012 in Chicago at the annual meeting of the American Finance Association.“Doug Diamond is widely known for his pioneering work in finance,” said Sunil Kumar, dean of Chicago Booth. “His research is insightful, has broad impact and has changed our way of thinking about some key aspects of the financial system,” said Kumar, who also is the George Pratt Shultz Professor of Operations Management.

“Doug Diamond has been at the center of the development of the modern theory of banking and financial intermediation,” said John Cochrane, head of the American Finance Association award selection committee and the AQR Capital Management Distinguished Service Professor of Finance at Booth. “He has brought careful bottom up economic analysis to all the issues that are at the center of our current — and historical — financial problems. These range from runs, liquidity, incentives and commitment to capital structure choices. His work literally founded the field,” Cochrane said.

Diamond joined the Chicago Booth faculty in 1979 as he was completing his PhD in economics at Yale. His research has appeared in the Journal of Financial Economics, the Journal of Finance, the Review of Economic Studies, the American Economic Review, the Journal of Political Economy, The Quarterly Journal of Economics and other academic journals.

His most influential early research included “Financial Intermediation and Delegated Monitoring,” in the Review of Economic Studies (July 1984) and “Bank Runs, Deposit Insurance, and Liquidity,” in the Journal of Political Economy (June 1983), authored with Philip H. Dybvig.

Diamond often collaborates on research on financial crises with Raghuram Rajan, the Eric J. Gleacher Distinguished Service Professor of Finance at Booth. They recently published “Fear of Fire Sales, Illiquidity Seeking, and Credit Freezes,” in the Quarterly Journal of Economics (May 2011). 

During the current academic quarter Diamond is teaching “Theory of Financial Decisions II,” which is a PhD course that some MBA students also take. Later this school year he is scheduled to teach “Financial Markets and Institutions,” an advanced MBA course in corporate finance, and “Theory of Financial Decisions III.”

In addition to his roles as a researcher and professor, Diamond is a visiting scholar at the Federal Reserve Bank of Richmond, a position he has held since 1990, and a board member of the Chicago Booth Center for Research in Security Prices. He is also a research associate at the National Bureau of Economic Research and has served as an academic consultant to the Federal Reserve Board.

Diamond is a former president of the American Finance Association and the Western Finance Association. He is also a fellow of the Econometric Society, the American Academy of Arts and Sciences, and the American Finance Association.