Current Research ReportsThe Glucksman Institute for Research in Securities Markets awards fellowships each year to outstanding second year Stern MBA students to work on independent research projects under a faculty member's supervision. Four research projects completed by the Glucksman Fellows of 2020-2021 are available below. These papers focus on important topics in empirical financial economics.
Richard Levich, Director
Electric Utilities and Market Volatility during the COVID-19 Pandemic
Electric utilities are organizations that engage in the generation, transmission, or distribution of electricity for sale in the market. The largest electric utilities in the US are called investor-owned utilities (IOUs) and are publicly owned corporations. As a security, IOUs have long been considered as investments with reliable earnings and dividend payments. We analyze this reliability during the COVID-19 pandemic to observe the market performance and volatility of IOUs during this global landmark event. Sample firms’ volatility, relative to the market, is measured as the beta value. This beta is calculated and compared over various time periods. Our results indicate that there was a significant increase when comparing betas calculated from monthly data from period Jan 2015-Dec 2019 to Jan 2016-Dec 2020 (p<0.01). There was also a significant increase when comparing betas from weekly data from 2019 to 2020 (p<0.01). Further analysis of index ETFs found that the pandemic affected industries differently—with the utility industry exhibiting one of the highest relative increases in beta. This result suggests that IOUs’ financial riskiness in various crises is not immune to significant change. As global recovery continues, factors such as innovative technologies and new regulations will continue to have a profound effect on electric utility performance.
Informed Options Trading in the Pharmaceutical Industry
Justin S. Rosinski
Informed options trading has previously been identified in several distinct contexts, including mergers and acquisitions, spin-offs, analyst recommendations, and earnings reports, among others. However, informed options trading occurring before announcements of critical events specific to the pharmaceutical industry such as Phase III clinical trial results and FDA drug approval outcomes has been an area largely unexplored. In this study, using an unbiased, open-source approach relying exclusively on publicly available information, we identify a dataset with several instances of unusually large volumes of options trading in companies preceding significant Phase III clinical trial results announcements from those companies—a full 50% of the firms identified in the dataset—suggesting that the pharmaceutical industry is acutely susceptible to abuse through informed options trading. These results strongly support more intense scrutiny of the pharmaceutical industry by the SEC, as well as the continuation of future work examining the full contours of potential informed options trading relating to other unique events common in the pharmaceutical industry, such as FDA approval outcomes and major patent litigation decisions.
Impact of Collective Bargaining Power on Corporate Performance and Employee Experience
Prior research on the relationship(s) between labor unions and measures of employee productivity, financial performance, corporate cost structure, stock performance, firm innovation and employee experience remains inconclusive as to whether collective bargaining stands as a justifiable approach to employee compensation. To determine whether collective bargaining brings significantly positive or negative impacts to (a) corporate financial performance, as measured by historic stock performance, profit margins and trading multiples; and (b) employee experience, as measured by the Quality Jobs framework along the dimensions of Stability, Viability, Equity and Flexibility, we examined a subset of 490 of the S&P 500 companies and evaluated the differences between companies with reported filings (Form 5500) of collective bargaining agreements and those without. Our findings indicate a statistically significant difference in corporate performance across several metrics, suggesting that collective bargaining is detrimental to corporate financial performance. However, because the analysis exhibited no statistically significant difference in quality jobs scores between firms with and without collective bargaining, it remains inconclusive as to whether labor unions bring a positive outcome for employee experience, indicating the need for more precise research in this vein.
An Examination of Trends in NIH Grant Distribution and Potential Biases Involved: A Case Study on HIV and Diabetes Research
In this paper, we examine where National Institutes of Health (NIH) research funds go, what they are used for, and how this distribution has changed over time for two diseases: human papillomavirus (HIV) and diabetes. We also discuss and evaluate the current process by which project funds are determined and allocated. We identify potential gaps in the application approval process and fund allocation process and provide recommendations for improving the efficiency and effectiveness of the processes.
By analyzing where and how research grants and funds are allocated, we find evidence of biases that may be present in the grant application review process. We find that the top 10 universities and medical centers, all with well-known brand names, received 20% and 30% of the research grant money for HIV and diabetes research, respectively. In the years examined, parts of the Midwest region of the U.S. were under-represented for receiving NIH grant awards; this was magnified in the case of HIV. Universities received between 70-80% of the grants and 55-77% of the award money from the NIH for both HIV and diabetes. Companies and research institutions received the most dollars per grant for both diseases compared to universities and medical centers. Treatment and diagnostic research made up a majority of grant funding at 60% and 70% for HIV and Diabetes respectively, while research on preventative care and education/training received a smaller share of funding. These findings, indicating bias towards certain organizations, geographies, and types of research, might be explained by gaps in the grant application review process. Possible solutions include setting a cap amount of funding each organization can receive, changing the ratio of initial reviewers to committee members involved in the process, and redefining the evaluation framework to promote diversity.