The coauthor of what has been called the “first billion-dollar economics article” has been appointed to a chaired professorship in the College of Business Administration at the University of Notre Dame.p. Paul Schultz will join the Department of Finance and Business Economics beginning in the 1998-99 academic year as the John W. and Maude Clarke Professor of Finance, according to Nathan O. Hatch, the University’s provost.p. “Paul Schultz has developed a well-deserved national reputation in the field of market microstructure,” Hatch said. “He is a first-rate researcher and an outstanding teacher who will contribute to the University in a multitude of ways. We are delighted that he soon will be joining us.”p. Schultz currently is a visiting professor of finance in the Graduate School of Business at the University of Chicago. He previously taught and conducted research at Ohio State University, the University of Iowa, the University of Illinois at Chicago, and Loyola University.p. A 1978 graduate of Macalester College with a bachelor’s degree in economics, Schultz earned his master’s of business administration and doctoral degrees in finance and economics from Chicago in 1985 and 1988, respectively.p. Schultz and William Christie are the coauthors of a major study of pricing patterns that led to a class-action lawsuit alleging price-fixing on the Nasdaq stock exchange. When 30 securities firms paid $910 million last December to settle the lawsuit, The Economist suggested in its January 17 issue that with the addition of legal fees and earlier settlements, “It is just possible that William Christie and Paul Schultz have written the first billion-dollar economics article.”p. Titled “Why Do Nasdaq Market Makers Avoid Odd-Eighth Quotes?” and published in the Journal of Finance in 1994, the study found that in 70 of the 100 most heavily traded stocks, Nasdaq dealers avoided quoting prices in odd eighths of a dollar. Instead, shares were far more likely to be quoted in quarters, raising the possibility that the dealers were tacitly colluding to keep the gap between the price they paid for a share and the price at which they sold it (the so-called bid-ask spread) wider than it could have been in a truly competitive market. Such actions would increase dealer profits while making it more expensive for the public to buy and sell Nasdaq stocks.p. In addition to the lawsuit, Schultz and Christie’s work led to major changes in the rules governing share trading in the United States, most of which affected Nasdaq, the world’s second-largest stock market.p. Schultz and Christie recently completed another study on the impact of the new rules. “Nasdaq Market Reform: New Evidence that Competition from the Public Lowers Trading Costs” is forthcoming in the Journal of Finance. The study reports that the spreads fell by about 30 percent immediately after the new rules took effect in January 1997. However, it also finds that the rules are not the only reason for narrower spreads, concluding that extensive publicity given to the price-fixing charges and closer regulatory oversight have played a role.p. Schultz and Christie received the 1995 Smith-Breeden Prize from the American Finance Association for their groundbreaking study on Nasdaq market makers.p. The author of more than a dozen published articles, Schultz also has made numerous academic presentations on regulatory and legal pressures, automated executions, bid-ask spreads, initial public offerings and other issues in the field. At Ohio State, he received the Pace Setter’s Research Award in 1995 and twice was honored with teaching awards.p. The John W. and Maude Clarke Chair in Finance is an endowed professorship funded by a trust created by John Clarke, an investment banker and longtime member of the college of business advisory council who died in 1983. Maude Clarke, who died in 1985, was the principal donor of Notre Dame’s Clarke Memorial Fountain, which honors University alumni who died in World War II, Korea and Vietnam
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