Chester Spatt, Finance Regulation Pioneer, Research Retrospective
Chester Spatt, Pamela R. and Kenneth B. Dunn Professor of Finance, is a pioneer in financial regulation research. Learn about the impact of his research on the economy and his career at the SEC.
Video Transcript
[Chester Spatt]
I see myself as very curious. I see myself as sort of open to learning. I'm always trying to learn about new things. Being a curious person, I want to understand, what are the facts? Without understanding what the facts are, I think it's hard to form conclusions about, what are the underlying relationships?
My research has focused on issues involving financial regulation, taxation and asset allocation, and mortgage contracting issues. My research has spanned across much of the financial economics discipline.
One of the things I took a lot of pride in is, after the paper I did with Dean Dammon and Harold Zhang on asset location, I had a number of very distinguished finance professors tell me that they changed the way they did their investing. And that was a source of a lot of pride.
[Duane Seppi]
Chester is, first off, a scholar's scholar. So he is a curious person with broad-ranging interests, some of which he's going to do research on, others of which, he's interested in the world. I think one of the most important things about Chester's research is that Chester is driven by first principles. The question is always, why are we doing this? What is important about this? What's robust? It's not to come up with a clever result, it's to come up with a result that's going to be robust, that's going to speak to something that's important in the world.
[Burton Hollifield]
He tends to be on the lookout for interesting, non-obvious situations that he can apply economic thinking to. As far as I can tell, he's just always thinking. I've gone to hockey games with him, and he's telling me how he can come up with a better way to sell tickets on the secondary market. He's a humongous Pittsburgh sports fan. Any sports event you want to see in Pittsburgh, there's a good chance he knows a lot about it.
[Chester Spatt]
In 2004, I became the SEC's chief economist. We addressed a variety of issues, ranging from option expensing rules, which I think had a big impact on changing the form of compensation, particularly among technology companies, but in the United States more generally. We addressed the issues involving mutual fund market timing to provide a much sounder footing there.
My most cited paper actually was the first paper to look at electronic limit order books, and look at the interaction between the order flow and the order book, and dealing with the salient aspects of our market structure has been a key issue for the SEC over many decades. I had been one of the founders of The Review of Financial Studies and its second executive editor. This played a good role, not only with respect to the papers that we published but, of course, the incumbent journals also responded in the ways that they competed, and so I think that was good. I think that was very good for the profession.
But what I love about teaching is the excitement that you can sometimes see in a student or students when the light bulb goes off and they get something that they hadn't previously appreciated or maybe even thought the opposite of.
[Burton Hollifield]
I've always thought that he's been very loyal to the institution and very loyal to the people at the school, in the sense that he's trying to help all of us.
[Duane Seppi]
It's not just enough that he's been able to come up with an insight about the world, but he wants to see the world be a better place because of the insights that he has and the things that he has to be able to contribute. We're all more productive as scholars because Chester's here.
As a chief economist of the United States, Chester's had an impact on the entire economy. And given the importance of the U.S. in the world economy, he's had an impact on the entire world's financial market system.
[Chester Spatt]
I'd like my legacy to be that I help people think about our financial markets more simply and how they should behave and react in the financial markets, and why they're acting in their self-interest. It serves the broader needs of society.