Chicago investment fund manager Richard H. Driehaus has donated $3.45 million to his alma mater, the College of Commerce at DePaul University, to endow a chair and establish a center in behavioral finance.
DePaul has named Werner F.M. De Bondt, a pioneer in the behavioral finance discipline and professor of finance at the University of Wisconsin-Madison, as chair of the new Richard H. Driehaus Center in Behavioral Finance.
"This gift allows DePaul's business school to attract an outstanding scholar, initiate research and expand teaching in behavioral finance, an innovative, interdisciplinary field that examines the psychology of investing and financial markets," said Arthur Kraft, dean of the College of Commerce. Kraft said expanded study of investor psychology and organizational behavior will help students understand and anticipate market phenomena that cannot be forecast from financial statements alone—such as the unbridled investor enthusiasm for financially unproven Internet firms during the 1990s.
"This will be a transforming gift for us," said Finance Department Chair Ali Fatemi. "Charged with the goals of incorporating the behavioral aspects of financial decision making into the curriculum, undertaking and disseminating research in the field, and conducting workshops, conferences, and seminars for practicing professionals and academics, the center will be instrumental in securing a leading position for us among our peer schools."
The launch of the Driehaus Center in Behavioral Finance is one of a series of moves by Fatemi that have enhanced the prominence of the finance department. Fatemi recently hired Bank One Chief Economist Diane C. Swonk, a nationally recognized financial forecaster, as a clinical professor of finance to teach a course this spring. The department also has partnered with the Federal Reserve Bank of Chicago to sponsor an annual finance research seminar series and formed an advisory board of leading financial professionals to guide its curriculum and mentor students.
Driehaus, who is chief executive officer and founder of Driehaus Capital Management, Inc., has long been a proponent of behavioral finance principles, which his firm uses to manage institutional portfolios and five international mutual funds worth approximately $3.2 billion. Driehaus believes that successfully navigating short-term fluctuations in stock prices often has more to do with understanding investor emotion and crowd psychology than analyzing company financial statements.
"The stock market is not science," Driehaus said. "I tend to approach the market from a social studies perspective as opposed to a heavily analytical one. That doesn't mean we don't look at the facts and the numbers, but we tend to look more at the context of what's happening now within the marketplace—what is the current psychology toward a specific sector or market group," he explained.
"This is the breakout way of thinking," Driehaus said. "It's a new way of approaching the market. Historically, the market has been taught within a heavy analytical framework, analyzing income statements and balance sheets. But that approach came out of the Depression. When you're in a Depression, you want to make sure you have a solid balance sheet, so that if you have to liquidate everything you can get your money back. That type of analysis is good in a very negative economy or an economy that is sliding down. But in an economy that's more venture and technology oriented, like we have now, that type of analysis is no longer as valuable."
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