Ask people on the street what mental image they associate with the words “stock exchange,” and you’ll likely hear about a large imposing building in the middle of New York or Chicago. Inside the building there is a huge space crowded with traders in multicolored jackets screaming and gesticulating to each other.
Until ten years ago, that would have been a pretty accurate description of a stock exchange. Today, however, almost all trading is done by algorithms firing digital commands traveling near the speed of light to rows upon rows of computer servers sitting in nondescript suburban warehouses.
The transition from human to electronic trading came with the promise of using faster and cheaper technology to drastically lower the costs of trading shares and to make it much easier to determine the most up-to-date prices for all market participants (commonly known as price discovery).
We’ve seen the downfall of many bricks and mortar stores over the last decade, including Borders, Circuit City, and most recently, RadioShack — to name just a few. As e-commerce continues to rise, it’s seemingly becoming more difficult for traditional stores to stay in business.
It’s true that online shopping has significantly grown over the last 10 years. Even in the last year, we’ve seen a noticeable uptick. According to the U.S. Census, total e-commerce sales for 2014 in the U.S. were estimated at $304.9 billion, which is a 15.4% increase from 2013. However, plenty of bricks and mortar stores are still healthy. Is it fair to blame e-commerce for every store closing and bankruptcy?
As a U.S. bankruptcy judge on Tuesday said he would approve a plan by the electronics retailer to sell 1,740 of its stores to the Standard General hedge fund and exit bankruptcy, it’s worth taking a closer look at why RadioShack failed. E-commerce wasn’t the only culprit. One big mistake involved poor strategic decisions over its financials. Feeling undervalued, the retailer bought back $400 million in stock in 2010 when its net profit was $206 million. It did something similar in 2011 when its net profit had declined to $72 million and it did another buy back for $113 million. In the end, it spent more than $500 million trying to push up the stock price.
MIT Sloan Visiting Associate Professor of Finance Lily Fang
From Wall Street Journal
Men and women have different experiences when it comes to Wall Street careers. And those differences fascinate Lily Fang.
Dr. Fang, an associate professor of finance on the Singapore campus of the business school Insead, has spent the past five years or so delving into how gender affects the career-development paths of stock-research analysts on Wall Street. What she and co-author Sterling Huang of Singapore Management University found was that the networking and personal connections that male analysts rely on so heavily to get ahead are much less useful for women in similar jobs.
Dr. Fang says the audience for this type of gender research has grown in recent years as it has become apparent that women—despite making great strides in many competitive industries—remain underrepresented in top echelons of the corporate world.
A native of Shanghai with a doctoral degree from the University of Pennsylvania’s Wharton School, Dr. Fang is spending a year as a visiting associate professor at MIT’s Sloan School of Management in Cambridge, Mass.
In his new book, Superpower, Eurasia Group’s Ian Bremmer suggests three strategic options for America to remain a global superpower. But while many lawmakers appear to be taking his preferred option of an “Independent America” to heart, we believe it’s the wrong choice. In fact, Bremmer leaves out a fourth approach that we feel is the best strategy for America to win not only on the current global chessboard, but on the next one as well.
With the US reluctantly being drawn back into putting out fires in the Middle East, warily watching Russian aggression, facing a stop-and-start “Asia pivot,” and on the sidelines the Greek crisis unfolds or Chinese stock markets go through turmoil, reviewing these options is timely for President Obama; they may be even more important for his successor.
The dramatic speed of financial transactions can be matched only by the intensity of the controversy surrounding it, especially when it comes to high-frequency trading.
In markets for stocks, futures and foreign exchange, transactions take place in milliseconds to microseconds (or even nanoseconds). Markets for fixed-income securities including corporate bonds and over-the-counter derivatives such as interest-rate swaps are also catching up quickly by adopting electronic trading.
To many, the “Flash Crash” of May 2010 was a wake-up call for reevaluating market structure. A series of technology glitches proved to be highly costly for some brokers, proprietary firms and marketplaces in terms of both profits and reputation. The SEC launched investigations into HFT firms and their strategies. French regulators introduced a financial transaction tax. Author Michael Lewis wrote “Flash Boys.” The list goes on.
With this fallout comes important economic questions: What are the costs and benefits to investors for speeding up trading? Is there an “optimal” trading frequency at which the financial market should operate? And does a faster market affect one group of investors more than another?