Tag: research



Outside a TD Ameritrade office

A new study finds wide disparities in the prices investors pay when buying and selling stocks through six popular brokerages. 

TD Ameritrade delivered the best prices, and Fidelity Investments, E*Trade and Robinhood Markets Inc. followed. Two trading platforms from Interactive Brokers Group Inc. came in at the bottom.

The experiment “reveals an astonishing dispersion in the quality of price execution across our sample of six brokerage accounts,” the authors write. They found the costs incurred in a transaction ranged from -0.07 to -0.46%, excluding any commissions. The average price improvement varied from 3 to 8 cents a share, which may not sound like much until you consider how many millions of trades people make daily.

14 million trades a day

The five brokers’ daily trading volume is 14 million daily trades, or 3.6 billion a year. The average retail trade of $8,000 translates into $28 trillion traded annually. So, for every one basis point of price execution difference, the annual cost to retail traders is $2.8 billion, according to the research.

“In that context, our observed execution differences are economically very large,” the authors say in their working paper, “The ‘Actual Retail Price’ of Equity Trades.”

“While we were aware that such trading would not be ‘free,’ we were surprised by the range of execution prices for our simultaneous identical trades.”

Huang

The researchers, including Olin Assistant Professor of Finance Xing Huang, bought and sold stocks 85,000 times over nearly six months. At the peak, their trades numbered more than 1,000 a day. They tried to place the same trades simultaneously with different brokers and measured the prices they got.

“Consumers should realize that zero commission doesn’t mean free trading, and the transaction costs could vary across brokers,” Huang said.

“Although we show that the differences are economically large on the aggregate level, the differences may be small on the individual level. While some consumers may be more concerned about other features of brokers, consumers who care about execution prices may be interested in our results.”

Different prices for the same trades

According to the research results, the price dispersion is because off-exchange wholesalers give different execution prices to brokers for the same trades.

“The difference in execution costs between these different brokers is huge, and nobody knows it,” Schwarz said.

Said Huang, “We were quite surprised by off-exchange wholesalers systematically give different execution prices to different brokers, even for the same trades.”

The findings indicate that the current disclosure regime is inadequate and provides limited information regarding the quality of price across brokers. “In practice,” the authors write, “it is very hard to compare the actual retail price execution quality of different brokers.”

The researchers spent their own money on the experiment, and they lost about $23,000 doing the trades, lead author Christopher Schwarz, of the University of California at Irvine, told The Wall Street Journal in a September 16 article.

Their impression was that they couldn’t use their research accounts since the experiment involved trading and uncertain outcomes, Huang said. “We did not want to get any funding from institutions because we didn’t want any potential conflicts of interest compromise our independent opinion.”




On September 12, President Joe Biden signed an executive order to launch a National Biotechnology and Biomanufacturing, noting the United States relies too heavily on foreign materials and foreign bioproduction. Off-shoring of critical industries threatens US ability to access materials like important chemicals and active pharmaceutical ingredients.

Consider the prescriptions you or your loved ones need for high blood pressure, infections or other ailments. Chances are, no manufacturing source exists in the United States for critical generic drugs or their active ingredients.

In fact, in 2021 the White House sounded the alarm about vulnerabilities in the pharmaceutical supply chain that has led to shortages of critical medicines the Food and Drug Administration deems “essential.” A White House report proclaimed, “The disappearance of domestic production of essential antibiotics impairs our ability to counter threats ranging from pandemics to bio-terrorism, as emphasized by the FDA’s analysis of supply chains for active pharmaceutical ingredients.”

The problem? It seemed that insufficient US manufacturing capacity due to offshoring was largely to blame. But new research from the Center for Analytics and Business Insights, at Olin Business School at Washington University, finds the US does, indeed, have the capacity to make the nation’s most essential and critical drugs—yet most of the capacity is sitting idle.

Report fills key data gap

The CABI report fills a crucial gap in available industry data: “US Generic Pharmaceutical Manufacturer Available Capacity Research Survey.”

Sardella

“We addressed of a significant blind spot, which was the understanding of available capacity in the United States to build supply chain resiliency,” said Anthony Sardella, author of the CABI report, senior research advisor for CABI and Olin adjunct lecturer.

“Our results were quite surprising. Fifty percent of available capacity is not utilized,” he said. “The number was stunning.”

On September 14, the Biden administration revealed it will invest more $2 billion into biotech and biomanufacturing efforts, with $1 billion from the Department of Defense for manufacturing infrastructure in the US.

30 billion more doses possible

Last year, the generic pharmaceutical industry made headlines when it announced the closure of several U.S. manufacturing plants. Why? In part because of lower offshore operating costs and labor rates, intense pricing pressure and steadily growing dependence on offshore sources for raw materials.

“How do we account for this incongruency?” Sardella asks. He and his team surveyed 37 U.S. generic pharmaceutical manufacturing sites. They found the sites are producing at just half of their production capacity annually, with an aggregate excess capacity of nearly 50%. In fact, only two of the 37 manufacturing sites are producing at full capacity.

If the sites got up and running, nearly 30 billion additional doses of essential and critical medicines could be produced in the US without incurring the expense of building new manufacturing plants and shorten the time to make generic medicines available from domestic sources, according to the report.

In a nutshell, the report recommends the following:

  • Repurpose idle sites to enable manufacturing to address shortages, increase supply-chain resiliency and build supplies within 24-36 months.
  • Continue current federal funding efforts for advanced manufacturing technologies to reduce production costs, create new workforce opportunities and increase the economic sustainability of US drug manufacturing.

Research aims to foster national policy

Sardella, who focused his research on issues at the intersection of business, government and society, will present the results of the paper on October 4 to the National Press Club in Washington, DC, to provide support for policy considerations and initiatives to strengthen US drug manufacturing sustainability.

The next step for CABI is its new paper, in progress, about how to model funding initiatives that de-risks the adoption of new, advanced manufacturing technologies, such as continuous-flow chemistry, to boost production.

CABI has been researching the drug shortage issue over the past couple of years. Learn more:




Dennis Zhang, Olin associate professor of supply chain and technology, has been named a co-winner of the 2022 Production and Operations Management Society (POMS) Early Career Research Accomplishments.

Dennis Zhang
Zhang

The award is one of the most prestigious honors in the operations management field. Zhang received the award in April during the POMS conference, which was virtual because of COVID concerns.

“I am honored to receive this recognition,” Zhang said. “This is very motivating, and I hope to continue contributing to the field through research and service.”

POMS chose Zhang based on his contribution to platform operations, especially retail platform operations, as well as his contribution to data-driven methodologies in operations, such as field experiments and applied machine learning.

For example, Zhang’s paper, “Reducing Discrimination with Reviews in the Sharing Economy: Evidence from Field Experiments on Airbnb,” published in Management Science, is the first study on how to use review information to fight against statistical discrimination on sharing platforms.

And “Customer Choice Models vs. Machine Learning: Finding Optimal Product Displays on Alibaba” is the first to implement a choice-model-based assortment optimization algorithm in a large-scale ecommerce setting. Operations Research published the paper.

Zhang joined the Olin Business School in 2016. His research focuses on operations in innovative marketplaces and in the public sector. He has built theoretical models to extract reliable insights from data and uses data to improve existing models. Before he joined the Olin faculty, he finished his PhD at Northwestern University and worked at Google as a machine learning software engineer.

The award co-winners are Ruomeng Cui of Emory University and Hummy Song of the University of Pennsylvania.




Small private firms that provide health insurance for their employees have better worker productivity and retention—as well as overall profitability—when compared with small firms that don’t offer health insurance, according to research by Ulya Tsolmon, assistant professor of strategy for Olin Business School.

Ulya Tsolmon
Tsolmon

The results suggest that investments in employee health and well-being provide a competitive edge to firms, especially when labor market competition for workers is high.

Firms have been shifting the costs of health care to employees, but they “might be wise to view employee health benefits as an investment that can yield significant returns,” Tsolmon and coauthor Dan Ariely, of Duke University, write in “Health Insurance Benefits as a Labor Market Friction: Evidence from a Quasi-Experiment,” in Strategic Management Journal.

“The results tell me that firms are gaining financial advantage even with their expenses toward health insurance benefits,” Tsolmon said. “The productivity results suggest that workers are ‘giving back’ to the firms by being more productive, which translates into higher profits.”

“Healthy and happy employees are innovative and productive employees.”

Ulya Tsolmon, assistant professor of strategy

The research also explored the link between high unemployment insurance benefits at the state level and more small firms providing health insurance in that state. High unemployment benefits ease employee mobility between companies, and firms respond by increasing “internal market frictions,” like offering health insurance, to keep their employees, the researchers found. That correlation didn’t apply to bonuses, pensions or training—making health insurance a unique lever among employee benefits.

The paper is the first to explain health insurance provision in small firms from the perspective of human capital management and to use empirical evidence to test its impact on firm performance, the authors say.

Data from 15,000 small firms

“Health insurance is a significant investment for small firms, so the interesting question to me was not why firms don’t offer health insurance, but rather looking at firms that do offer health insurance, asking why they do that and whether it’s a smart strategy and under what conditions,” Tsolmon said.

The research used data from the financial records of 15,000 small firms (with no more than 500 employees) in the US. The data set included accounting details on all expenses and revenues, as well as employee records, for five years. The authors looked at twelve different variables, including training costs for an employee.

Tsolmon supplemented the financial records with 761 Glassdoor reviews and 11 open-ended interviews with randomly selected small business owners, representing different industries and firm sizes. Just like with the numbers’ data, employee satisfaction was reported to be higher in firms that offered health insurance, and business owners spoke about more easily attracting and retaining employees after they began offering health insurance.

Implications for large firms

“By investing in worker well-being,” Tsolmon said, “firms can tap into their latent productivity and innovation that’s difficult to incentivize with monetary rewards alone. Healthy and happy employees are innovative and productive employees.”

The research also has implications for large firms, most of which provide health insurance but whose benefits differ in generosity.

“Given our finding that policies intended to increase employee wellness can affect turnover, productivity, and firm performance, large firms should consider increasing the employee uptake rate of health benefits by bearing a greater share of the insurance costs themselves,” the authors write.

Jill Young Miller contributed to this report.




Professor Andrew Knight teaches a hybrid course in Emerson auditorium. In front of him, socially distanced students site in the auditorium, while behind, students participating remotely appear on screen.

For nearly 20 years, Andrew Knight has been interested in unobtrusive research methods. A professor of organizational behavior, he’s passionate about learning how people can best work with one another, and his current focus is on improving people’s virtual collaborations.

Knight used the onset of the COVID-19 pandemic in 2020 as a spark for packaging something he’d been experimenting with to analyze photos and video recordings.

The result: a new, free software named zoomGroupStats.

“With teaching shifting to a virtual realm and a pressing need to understand virtual collaboration, I was motivated to accelerate the development of this software,” he said.

The package is to enable researchers to use the virtual meetings platform Zoom to collect data that illuminates how people interact with one another, Knight said. With it, users can quickly turn files downloaded from Zoom into datasets, analyze the dynamics of spoken and text conversations in virtual meetings, and extract information from the video feeds of virtual meetings.

Who do you imagine using this software? And for what?

Knight

The first category is researchers. The software is currently designed especially for researchers who study teamwork, negotiations, interpersonal relationships and group dynamics. However, the basic functionality of the library would be useful to anyone who wants to extract insights into conversation dynamics and emotion during virtual meetings.

The second category is teachers running virtual classes. The software can provide insights into who is engaged in the conversation during a class (i.e., class participation) and the ways in which people are making contributions (e.g., vocal contributions, text-based chat contributions).

The third category is leaders and managers who conduct virtual meetings. When paired with a web application that I created (http://meetingmeasures.com), the software can give leaders feedback on how effectively they facilitate virtual meetings. 

How easy are the tools to use?

When paired with the step-by-step tutorial that I created (http://zoomgroupstats.org/), I hope the library is accessible for anyone with a basic level of proficiency with the open source statistics software R. Some elements of the functionality—such as the capacity to read the emotional expressions of people’s faces through their cameras—requires an additional level of proficiency in setting up and configuring Amazon Web Services. 

What are the privacy concerns with this software?

Like any use of recorded human behavior, users must take into account privacy considerations. In a way, the privacy concerns for research are equivalent to more traditional methods (e.g., having human research assistants rate and classify people’s behavior from a video recording). However, people have variant perspectives on software-based “automatic” coding compared to human-based coding of their behavior. As a general rule, anytime a meeting is being recorded, a meeting leader should explicitly request permission to record from all meeting participants.

How have you used your software?

I’ve used this for research and teaching purposes so far. On the research side, I have primarily been working to validate a set of metrics that can be automatically derived from a virtual meeting vis-à-vis traditional, survey-based metrics. This is important to situate the automatic metrics within the current landscape of research on interpersonal relations and group dynamics.

On the teaching side, I have used this software in combination with my Meeting Measures web application to give students feedback on their virtual meetings. This is helpful for showing students when, for example, they dominate the conversation or make inadequate contributions to their team meetings. 

So the software is free?

Yes. The R package is free and open source. It is available through the web-based repository (Comprehensive R Archive Network, or CRAN) that is used to distribute packages for R. 

Top photo: Professor Andrew Knight teaches a hybrid course in September 2020 in Emerson Auditorium. In front of him, socially distanced students site in the auditorium, while behind, students participating remotely appear on screen.