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Q-3_2018_efl-News_16 03.07.18 01:20 Seite 1
efl quarterly 03 2018
| AN E-FINANCE LAB PUBLICATION
Brexit Challenges and Solutions for
EU Financial Markets
How Digitization Disempowers
CIOs in Strategy Building
The Impact of Robo-Advice on
Fund Savings Plan Choices
Buy-Side Trading – First Impressions:
180 Days into MiFID IIQ-3_2018_efl-News_16 03.07.18 01:20 Seite 2
Impressum
Redaktion
Prof. Dr. Peter Gomber
M. Sc. Jascha-Alexander Koch
Dr.-Ing. Sonja Bergsträßer
Herausgeber
Prof. Dr. Wolfgang König
Vorstandsvorsitzender des E-Finance Lab
Frankfurt am Main e. V.
Prof. Dr. Peter Gomber
Stellvertretender Vorstandsvorsitzender des E-Finance Lab
Frankfurt am Main e. V.
Kontakt
info@efinancelab.com
www.efinancelab.com
Gestaltung
Novensis Communication GmbH
Bad Homburg
3. Ausgabe, 2018
Auflage: 200 Stück (Print) / 2.000 Stück (E-Paper)
Copyright © by E-Finance Lab Frankfurt am Main e. V.
Printed in Germany
ISSN 1866-1238Q-3_2018_efl-News_16 03.07.18 01:20 Seite 3
efinancelab | quarterly 03 | 2018 03
Editorial
Brexit Challenges and Solutions
for EU Financial Markets
Matthias Graulich Matthias Graulich
Member of the Executive Board
Eurex Clearing
After the financial crisis, the G20 committed to EU accounting for almost 80% of its financial CCP, cooperation is of course beneficial under EU regulators that OTC IRD denominated in
bringing over-the-counter (OTC) derivatives mar- market activity. As regards IRD denominated in fair weather. However, conflicts of interest Euro must be cleared within the EU going for-
kets towards more transparency and collaterali- the EU’s currency – the most important currency might appear quickly in a crisis scenario. Then, ward, we believe that a market-led solution to
zation against risk exposures. In particular, cen- in the OTC IRD market next to the US Dollar – a stabilizing measure from the perspective of develop a liquid, EU27-based alternative is
tral clearing via Central Counterparties (CCPs) even more than 95% are currently cleared at the the home supervisor might go against our preferable over any forced relocation. Our pro-
has thus become the corner stone of risk mana- London Clearing House (LCH). Amidst the signif- interests from the EU perspective. This illus- gram has gained broad market support with
gement in financial markets. CCPs calculate icant volume in question, Brexit will lead to a sit- trates well the limits of joint supervision, 29 sell-side firms from the US, the United
risks in real-time, demand adequate collateral, uation in which a CCP with systemic importance entailing a right of information but no decision- Kingdom, Asia, and Continental Europe on
and guarantee the fulfillment of transactions. for EU financial stability will operate outside the making or enforcement powers for EU author- board and a strong increase in market share
Consequently, one crucial element for CCPs’ umbrella of EU regulation and supervision – ulti- ities. Relocation might be the only regulatory to 8% in May 2018 from close to nothing last
ecosystem is an efficient supervisory setup. mately leaving EU supervisors and central banks tool to ensure that the CCP in question is year. Most importantly, we can observe a level
without appropriate tools for intervention. appropriately supervised and decisions by EU playing field in OTC IRD execution prices. Bid-
This becomes especially evident when we look authorities can actually be enforced. offer spreads for Eurex Clearing and LCH-
at OTC interest rate derivatives (IRD) as the This is why EU regulators are discussing how cleared transactions which were assumed to
largest derivatives market in the world: Clearing to enhance the EU’s ability to manage potential Establishing a Market-Led Solution for a drive adverse effects on EU end clients are
and risk management of these products are systemic risks, which may result from Euro- EU27-Based Clearing Alternative essentially the same now, nullifying any con-
essential for the real economy and financial denominated financial products cleared out- March 2019 is getting closer and a hard Brexit cerns around price quality and costs for the
stability. IRD are closely interlinked with the mo- side the EU jurisdiction: Joint supervision and cannot be ruled out. It is more important than industry. By establishing a competitive, effi-
netary and liquidity policy of central banks and location requirements for systemically impor- ever to get prepared now. In order to assist the cient market-led solution, clients and the
they are used by the buy-side to hedge against tant third-country CCPs. market and regulators alike to cope with the broader market place can benefit through
interest rate risks affecting their business. unprecedented uncertainty around Brexit, greater choice and competition, improved price
Limits of Joint CCP Supervision When Financial Eurex Clearing, one of the world’s leading transparency and quality, as well as greater
Brexit Challenges for Systemically Important Stability Matters Most CCPs, has developed a partnership program robustness of financial markets, bringing the
Clearing Activities As regards joint supervision by EU authorities together with major participants in the IRD EU closer to the G20 objective of strengthening
The UK currently acts as a wholesale hub for the and the home supervisor of a third-country market. While we fully agree with the desire of financial stability.Q-3_2018_efl-News_16 03.07.18 01:20 Seite 4
04 efinancelab | quarterly 03 | 2018
Research Report A DBS formulates a cross-functional business investments in IT and therefore most likely to
strategy, which integrates „digital“ purposes by already manage the challenges of the digitization.
definition in order to leverage IT-related resources Assuring for the IT leader’s decisional power, we
to create differential value (Bharadwaj et al., 2013). considered companies with a firm size of 50
How Digitization Disempowers CIOs or more employees as well as maintaining IT
Still, the two concepts mainly differ in terms of departments with more than two employees.
in Strategy Building being structured by either the coordination of two 35% of the respondents in our sample derive
separate strategies for business and IT (IT align- from the finance industry and the IT sector.
EXTANT STRATEGY CONCEPTS ARE CHALLENGED DUE TO THE ONGOING DIGITIZATION, ment) or one fused overall strategy (DBS). As the
WHICH FUNDAMENTALLY CHANGES CONDITIONS FOR ALL MARKET PARTICIPANTS. THIS concept of DBS in contrast to extant strategy To our knowledge, our research (Wunderlich,
RESEARCH COMPARES THE CONCEPT OF IT ALIGNMENT WITH THE RECENTLY INTRODUCED attempts is not clarified yet, the task of this 2018) is the first to gain a measurable concep-
“DIGITAL BUSINESS STRATEGY” (DBS), WHICH DESCRIBES A CROSS-FUNCTIONAL AND research is to give first insights for a comparison tualization for the recently introduced concept of
AGILE FUSION OF BUSINESS AND IT STRATEGY. THE RESULTS REVEAL A TOTAL ABSENCE with the established conception of IT alignment. DBS. Due to the exploratory approach for quanti-
OF A DIRECT INFLUENCE OF IT LEADERS (CIOS) ON DBS, WHEREAS A HIGH IMPACT ON IT Since organizational leaders are in charge of for- fying DBS, we build on prior theoretical concep-
ALIGNMENT IS STILL GIVEN. BUSINESS LEADERS IN TURN IMPACT MORE ON DBS. mulating strategy, this research focuses in partic- tualization (Bharadwaj et al., 2013). These
ular on how top managers influence both con- theoretical considerations serve as input for
Nico Wunderlich Roman Beck cepts, strategic IT alignment and DBS separately. executing an exploratory factor analysis based on
the gained survey data. This statistical procedure
Method reveals a four factor structure as quantitatively
Introduction existence of a business strategy and a separate IT During December 2016 and January 2017, a quan- deployable representation of DBS (Table 1).
Digital business environments are characterized strategy. Latest attempts underline the socially titative survey was conducted among 944 partici-
by higher interconnectedness and expanding complex processes to achieve IT alignment pants of an online panel of senior IT decision mak- We apply the four items for DBS within a nomolog-
interdependencies, questioning static approaches through a shared understanding between busi- ers in the U.S., resulting in N=255 completed ical network to achieve first content-related
to compete in these markets. Uncertainty and ness and IT executives about the role of IT in an questionnaires. In particular, we focused on results in comparison to IT alignment. To explore
dynamism in digitized markets demand for an organization. knowledge-intensive organizations, as classified the coherence with related organizational struc-
increased agility of business strategies. Existing by the OECD, which are characterized by higher tures, this analysis tests all mentioned constructs
strategy concepts have to be revised due to the In order to keep up with the aforementioned chal-
encompassing role of IT evolving from a mere lenges of digitization, strategic concepts which How effective is your company in appropriating value through the control of
Digital Architecture
business supporter towards an integral part of prepare for an era after the digital transformation the firm’s digital architecture?
whole businesses. are requested, when business models completely How effective is your company in leveraging value from multisided
Digital Business Model
rely on IT. A rethinking of traditional structures, business models?
The last 25 years have been determined by control elements, and strategic concepts for IT
How effective is your company in speeding up learning for improving strategic
attempts to overcome the gap between IT as kind underlines the challenge for organizations to Business Dynamism
and operational decision making?
of “intruder” into a historically grown business develop a digital mindset, consolidated and for-
How well does your company take advantage of data, information, and
environment, which gave rise to the emergence of mulated in digital business strategies (DBS), Information Management
knowledge abundance?
what is known as IT alignment (Coltman et al., which suppose a fusion of IT and business strategy
2015). IT alignment is characterized by a parallel within one single program (Teece et al., 2016). Table 1: Measuring Digital Business Strategy: Surrogate Four-Item ConceptualizationQ-3_2018_efl-News_16 03.07.18 01:20 Seite 5
efinancelab | quarterly 03 | 2018 05
strategic concepts was assessed on managerial interconnectivity and interdependencies.
CIO
0.094n.s. level in knowledge-intensive industries. The find-
Stuctural Power
ings reveal a differentiated view on which organi- Business managers appear capable of assessing
zational leaders influence which strategy concept. strategic aspects of digitization. On the one hand,
0.466*** Due to its conceptualization as coordinating the this indicates good conditions for a profoundly
Strategic Digital Business
0.359***
0.393***
IT Alignment Strategy business and IT strategies, IT alignment is deter- implemented digital mindset shouldered by both
mined by both the CIO as well as the executive the IT and the business side in the regarded organ-
board to a comparable extent. For DBS, we find a izations. On the other hand, IT competence of
Executive Board 0.428*** complete different picture: As main finding of our business managers shifts the strategic IT decision
study, we especially emphasize that CIOs as high- making authority from the IT side to the business
* = p-value < 0.05 ** = p-value < 0.01 *** = p-value < 0.001 n.s. = not significant
est IT leaders in an organization do not share any side, as our research reveals.
Figure 1: Influence of CIOs and Executive Board on IT Alignment and Digital Business Strategy direct influence on DBS.
References
within one structural equation model (SEM). This ture of the concept: Both leader groups (CIOs and Our research presents the two concepts IT align- Bharadwaj, A. S.; El Sawy, O. A.; Pavlou, P. A.;
statistical operation estimates interrelations in business managers) influence the formation of IT ment and DBS as highly correlated. After a decade Venkatraman, N. V.:
multiple linear regressions simultaneously for a alignment on comparable level. Our research to overcome the gap between business and IT via Digital Business Strategy: Toward a Next
whole research model. All gained path coefficients shows a slightly higher determination of IT IT alignment, the well-balanced influence by both Generation of Insights.
were found highly significant or clearly not verifi- alignment by the IT side than from the business the IT and the business side on IT alignment high- In: MIS Quarterly, 37 (2013) 2, pp. 471–82.
able (Figure 1). side, stating the CIO’s structural power as lights this concept as approved. This research
leading to higher strategic decision-making confirms IT alignment as preceding DBS; espe- Coltman, T.; Tallon, P.; Sharma, R.; Queiroz, M.:
Empirical Findings authority within the IT alignment process. cially the measured strategic IT domain know- Strategic IT alignment: Twentyfive years on.
The two regarded strategic concepts, IT align- ledge of the business managers derives from In: Journal of Information Technology, 30 (2015)
ment and DBS, are influenced by different orga- The findings for the influence of IT alignment on achieved social IT alignment between business 2, pp. 91–100.
nizational leaders according to their affiliation to DBS may be traced back to achieved social align- and IT leaders.
the IT side or business side. Confirmed by the ment and shared understanding about IT between Teece, D.; Peteraf, M.; Sohvi, L.:
applied statistical procedures, only the business business and IT leaders. IT alignment serves as The changed importance of IT demands strategic Dynamic Capabilities and Organizational Agility
side impacts a DBS in organizations: The highest suitable predecessor of building a DBS in the concepts that facilitate increased agility for organ- Risk, Uncertainty, and Strategy in the Innovation
influence in our model was found for the top regarded organizations, even more since the izations. This study finds a significant influence of Economy.
management team affecting DBS. No direct tracked IT knowledge of the business side serves business managers on IT related strategy building In: Sloan Management Review, 58 (2016) 4,
impact of CIOs on DBS could be proven. Although as a profound resource of business leaders in for- in knowledge-intensive industries, in particular pp. 13-35.
being designated as “digital”, DBS are predomi- mulating the digital facets of a DBS in particular. for fused business strategies encompassing
nantly determined by the business side. digital facets. Our analysis demonstrates an Wunderlich, N.:
Conclusion already executed responsibility and accountability Exterminate? – Who Influences IT Alignment
Coincidentally, the path for a CIO to influence DBS This research demonstrates how organizational of the business side for coping with these chal- and Digital Business Strategy.
is of indirect manner by affecting the IT strategy decision making changes under the progressively lenges of the digitization, since the concept of DBS In: Proceedings of the 26th European Confe-
within the IT alignment process only. The results ongoing digitization. The influence of the business incorporates dynamic capabilities for firms to rence on Information Systems (ECIS 2018);
for IT alignment are in line with the defined struc- side as well as from the IT side on two IT-related answer the challenges of increasing market Portsmouth, UK.Q-3_2018_efl-News_16 03.07.18 01:20 Seite 6
06 efinancelab | quarterly 03 | 2018
Research Report portant limitations of the robo-advisors’ matching the investor has to decide on the recurring in-
algorithms. In particular, several tools match vestment amount (contribution rate), the inten-
clients to risky portfolios based on only a handful ded investment horizon in years, the desired
of questions about a client’s risk preferences risk-level (“low”, “medium”, “high”), and the fund
The Impact of Robo-Advice on while others elicit risk preferences more com- type (passive ETFs or actively managed mutual
prehensively but only offer a few portfolios to funds or a blend of both). Based on these entries,
Fund Savings Plan Choices match with (Tertilt and Scholz, 2017). Despite the robo-advisor proposes a specific asset allo-
their simplicity and associated concerns about cation and provides one fund recommendation
IN THE CURRENT REGIME OF LOW INTEREST RATES, TAKING SOUND SAVINGS DECISIONS suitability, robo-advisors have seen a tremen- within each recommended asset class and re-
POSES A SIGNIFICANT CHALLENGE TO MOST INDIVIDUALS. FUND SAVINGS PLANS ALLOW dous growth in assets under management gion (e.g., European equities). The investor is
TO ACCUMULATE PRIVATE SAVINGS VIA AUTOMATED RECURRING INVESTMENTS IN (AuM). For instance, Oliver Wyman (2017) pre- free to change these default fund recommen-
SELECTED FUNDS. LOW FEES AND SMALL MINIMUM INVESTMENT AMOUNTS MAKE THEM dicts AuM of German robo-advisors to increase dations by choosing alternative funds from an
A SUITABLE SAVINGS VEHICLE ALSO FOR LOW NET-WORTH INDIVIDUALS. WHILE TRADI- by 165% p.a. from about EUR 0.8 billion in 2017 interactive list consisting of a broad universe of
TIONAL FINANCIAL ADVISORS ONLY RELUCTANTLY PROVIDE ADVICE ON SMALL-SCALE to EUR 35 billion in 2021. Currently, robo-advi- ETFs and active mutual funds.
INVESTMENTS, THE RECENT SURGE OF ROBO-ADVISORS ENABLES ACCESS TO ADVICE ON sors are continuously becoming more sophisti-
SAVINGS PLAN CHOICES FOR INVESTORS FROM ALL WEALTH BANDS. IN THIS REPORT, cated aiming at offering a more individualized Who Uses Robo-Advice Savings Plans?
WE PRESENT EMPIRICAL RESULTS ON THE IMPACT OF INTRODUCING AN AUTOMATED advice process and eventually holistic financial We compare investment choices of investors
INVESTMENT TOOL AT A LARGE GERMAN ONLINE BANK ON PRIVATE INVESTORS’ SAVINGS planning services. who set up SPs with guidance of the robo-advi-
DECISIONS. sor (robo-advice SP users) to choices of inves-
Motivated by these trends, we investigate the tors who do not make use of the tool when set-
Konstantin Bräuer effect of robo-advice on SP choices of individual ting up an SP (self-directed SP users). The
investors using data from an online bank that average contribution rate per SP amounts to
provides an automated investment solution to EUR 341.3 for robo-advice SP users and to EUR
Introduction its clients. 276.47 for self-directed SP users, or 5.3% and
During the past years, households have been Robo-advisors offer automated and low-cost 4.1% when stated relative to investors’ total
confronted with exceptionally low interest rates investment advice and asset management servi- Data assets deposited at the bank. Around 80%
making savings decisions increasingly difficult. ces available at substantially lower investment We obtain data from a large German online of SPs in the sample see contributions at a
At the same time, declining levels of pension requirements compared to traditional advisory bank that provides a wide range of retail bank- monthly frequency.
benefits have shifted the responsibility to pro- services. These online tools promise to provide ing products, such as checking and savings
vide for one’s old age towards the individual. unbiased advice primarily by recommending in- accounts as well as brokerage services. In 2014, We find that robo-advice SP users have both sub-
Households are thus more than ever required vestments in low-cost passively managed ex- the bank introduced an automated investment stantially lower total assets under management
to make adequate savings decisions. In this change-traded funds (ETFs) thereby overcoming solution (robo-advisor) that offers a guided (EUR 22,018 vs. EUR 35,844 on average) and lower
context, fund savings plans (SPs) have increas- problems of traditional personal advice, such as process for investments in funds through lump portfolio assets (EUR 13,490 vs. EUR 25,491 on
ingly been promoted by the media, government distorted incentives that push clients towards sum investments and SPs. average) while there is no significant difference in
institutions and, more recently, by robo-advi- high-cost products and harm performance (e.g., income between both groups. Moreover, robo-
sors as a powerful tool to help individuals build Hackethal et al., 2012; Mullainathan et al., 2012). To set up an SP, the robo-advisor requires an advice SP users on average trade less than
up savings. First empirical studies, however, emphasize im- investor to make several decisions. Specifically, non-users and have a shorter relationship withQ-3_2018_efl-News_16 03.07.18 01:20 Seite 7
efinancelab | quarterly 03 | 2018 07
their bank. Overall, descriptive statistics indicate means between treatment and control group Additionally, robo-advice SPs on average have treatment period) and then set up a new SP
that among SP investors there is selection of investors and shows that both groups differ sub- an equity (bond) share of 50.4% (48.6%) while during July 2014 – December 2015 (post-treat-
younger, less experienced, and less wealthy indi- stantially along several SP characteristics. self-directed SPs have an average equity ment period) with the help of the tool (treat-
viduals into the observed robo-advisor. (bond) share of 80.9% (11.4%). Only 5.5% of ment group) or self-directed (control group),
For example, the average share of passive funds robo-advice SPs are allocated to equity funds respectively. Figure 2 depicts a monthly time-
How Does the Tool Shape Savings Plans of (passive share) amounts to 89.4% for robo-advice only. On the contrary, 65.9% of self-directed series of four key portfolio measures and
First-Time Users? SPs and 69.8% for self-directed SPs. As a result, SPs are equity-only portfolios. Hence, SP port- suggests that using the robo-advisor signifi-
In a first step of our analyses, we construct a the average total expense ratio (TER) of robo- folios set up with the help of the tool exhibit cantly changes investors’ SP choices. We test
sample of investors who set up their first SP at advice SPs is 35 basis points (bps) lower than the substantially different risk-return characteris- for the significance of the illustrated treatment
the bank after introduction of the robo-advisor average TER of self-directed SPs. While this dif- tics. Finally, our results indicate that robo-ad- effect and find that our previous results
tool during July 2014 – December 2015 and ference potentially reflects a selection mecha- vice SP portfolios are also more diversified. In for first-time SP users also hold in a within-
never invested through an SP before. Specifi- nism of investors preferring ETFs selecting into particular, they have a smaller allocation to subject setting that controls for observable
cally, we compare investors who set up their robo-advice it is, however, not solely driven by a home equity (i.e., German equities) and exhibit investor characteristics as well as unobservable
first SP with the help of the robo-advisor (treat- higher share of passive funds in robo-advice SPs. a lower return loss measured as the vertical investor and time fixed-effects. Specifically, our
ment group) to self-directed investors who set up Robo-advice SPs also contain less costly funds distance to the capital market line in a mean- estimates indicate that setting up a new SP
their first SP in the same time period but do not than self-directed SPs both within the group of variance diagram (Calvet et al., 2007). Thus, with guidance of the robo-advisor significantly
use the tool (control group). active and passive fund choices. In particular, the results suggest that robo-advice users benefit decreases (increases) the equity (bond) share
majority of robo-advice users (87.4%) adheres from the tool’s recommendations since port- by 14% (23%), increases the passive share by
To account for self-selection, we use a matching to the tool’s default fund recommendations and, folio underdiversification has been shown to 28%, and decreases the average TER of SP
methodology that performs a nearest-neighbor importantly, these funds are by and large less significantly impair risk-adjusted returns (e.g., funds by 45.2 bps relative to the effects when
propensity score matching but restricts the costly than funds selected by self-directed Goetzmann and Kumar, 2008). setting up a new SP in the post-treatment peri-
matching to groups that are similar with respect investors. Robo-advice users can be expected to od without guidance of the tool. Most impor-
to specific ranges of demographic and account significantly benefit from this cost advantage All the aforementioned unconditional differen- tantly, also in a within-subject setting we find
characteristics. Figure 1 presents differences in (e.g., French, 2008). ces in means are confirmed in a regression that the robo-advisor significantly alters the
setting when controlling for various observable risk-return (i.e., diversification) characteristics
Number of funds 3.5
2.3 investor characteristics pointing towards high- of users’ SPs. That is, we observe a decrease
50.4
Equity share (%) 80.9 ly statistically and economically significant in the annualized return loss of 31 bps through
2.3
Home equity share (%) 12.4 effects of using the tool on diversification and tool usage. More precisely, setting up an SP
Bond share (%) 48.6 cost properties of SPs. with guidance of the tool slightly decreases
11.4
5.5 expected returns, which shifts overall SP port-
Equity only (%) 65.9
Passive share (%) 89.4 How Does the Tool Change Investors’ Savings folios away from the efficient frontier, but sub-
69.8
Average TER (bps) 33.0 Plan Choices? stantially decreases total and idiosyncratic
68.0
Annualized return loss (bps)
43.0 To further validate and isolate the treatment volatility, which shifts them disproportionately
86.0
effect of the tool, we conduct a differences-in- closer to the efficient frontier, as compared
0 25 50 75 100
differences analysis using monthly data of SP to when setting up a new SP without using the
Robo-advice SPs Self-directed SPs
users. The sample consists of investors who tool. This results both from less aggressive
Figure 1: Savings Plan Characteristics by Type of Savings Plan use SPs during January 2013 – June 2014 (pre- asset allocations and a selection of more diver-Q-3_2018_efl-News_16 03.07.18 01:20 Seite 8
08 efinancelab | quarterly 03 | 2018
similar to each other, i.e., the robo-advisor References
Passive Share Average TER (%)
0.60 1.50 leads to more homogenous portfolios. This Calvet, L. E.; Campbell, J. Y.; Paolo, S.:
results primarily from the high rate of adher- Down or Out: Assessing the Welfare Costs of
0.30 1.00 ence to the tool’s default fund recommenda- Household Investment Mistakes.
tions, which leads to similar fund choices In: Journal of Political Economy, 115 (2007) 5,
0.00 0.50
among robo-advice users. pp. 707-747.
Bond Share Annualized Return Loss (%)
0.30 1.30 As shown in Figure 2, also for control group French, K. R.:
investors we find an increase (decrease) in the Presidential Address: The Cost of Active Investing.
0.15 0.80
passive share (average TER) but the magni- In: The Journal of Finance, 63 (2008) 4, pp. 1537-
0.00 0.30
tudes of the effects are much smaller. Thus, 1573.
Jan13 Oct13 Jul14 Apr15 Jan16 Oct16 Jan13 Oct13 Jul14 Apr15 Jan16 Oct16
also control group investors change their SP
choices in the post-treatment period when set- Goetzmann, W. N.; Kumar, A.:
Robo-advice users Robo-advice non-users
ting up a new SP. As illustrated in Figure 2 and Equity Portfolio Diversification.
Figure 2: Savings Plan Characteristics Over Time and the Impact of Robo-Advice 3, however, self-directed investors’ diversifica- In: Review of Finance, 12 (2008) 3, pp. 433-463.
tion choices are largely unchanged.
sified funds. Figure 3 illustrates these differ- located within the orange ellipse in the left Hackethal, A.; Haliassos, M.; Jappelli, T.:
ences by depicting the position of SPs in a panel of Figure 3 after investors have used Conclusion Financial Advisors: A Case of Babysitters?.
mean-variance diagram as well as correspon- the tool. It becomes apparent that after using Our results suggest that investors can benefit In: Journal of Banking and Finance 36 (2012) 2,
ding 90% confidence ellipses for our before/ the robo-advisor, users’ SPs are located signi- from automated investment tools in building pp. 509-524.
after and user/non-user observations. For ficantly closer to the efficient frontier (the capi- up well-diversified and low-cost (SP) portfolios.
example, 90% of robo-advice users’ SPs are tal market line) and become substantially more On the other hand, we find that investors sub- Mullainathan, S.; Noeth, M.; Schoar A.:
stantially alter their asset allocation choices The Market for Financial Advice: An Audit Study.
Robo-Advice Users Robo-Advice Non-Users when using the tool even though recommenda- In: NBER Working Paper, 2012.
Expected monthly return (%)
1 1 tions are based on only a few input parameters
rather than a more comprehensive individual Oliver Wyman GmbH:
risk profile. These findings raise concerns Robo Advice – Ungebremstes Wachstum. Online
0.5 0.5
about the suitability of digital advice that focus- publication, http://www.oliverwyman.de/our-
es on simplicity by offering generic advice and expertise/insights/2017/aug/robo-advice-
0 0 only little individualization. Moreover, the large ungebremstes-wachstum.html.
fraction of users adhering to default fund rec-
0 5 10 0 5 10
ommendations points out the importance of Tertilt, M.; Scholz, P.:
Monthly return std. dev. (%) Monthly return std. dev. (%)
appropriate default (fund) settings in automat- To Advice, or Not to Advice – How Robo-Advi-
90% confidence ellipse (before) Before Capital market line
ed investment solutions. As a next step, we will sors Evaluate the Risk Preferences of Private
90% confidence ellipse (afer) After Market portfolio
further elaborate on the causal effect of the Investors.
Figure 3: Savings Plan Efficiency and the Impact of Robo-Advice tool on investor choices. In: SSRN Working Paper, 2017.Q-3_2018_efl-News_16 03.07.18 01:20 Seite 9
efinancelab | quarterly 03 | 2018 09
Insideview
Buy-Side Trading – First Impressions:
180 Days into MiFID II
INTERVIEW WITH CHRISTOPH HOCK Christoph Hock
Head of Multi Asset Trading
Union Investment
Since January 3rd, 2018, MiFID II has to be impact, has decreased? Could you provide us with some examples for our market insights to regulators. At the same
applied in the European Union. What are the new sources of liquidity? time, it is our goal to take part in the process and
main implications of MiFID II and has the I think it is too early for a comprehensive review of to make sure that the cost of trading is further
regulatory initiative changed your role as the impact of MiFID II, despite the fact that the Of course. We do notice that central risk books reduced to offer our clients and our investors
trading desk? regulatory initiative has been live for roughly 180 at bulge brackets firms and conditional LIS the best service possible. This applies to equity
days. At first glance, though, the costs are impro- (large-in-scale) venues are being used more trading as well as to fixed income, FX, deriva-
Our role as a trading desk has not changed at ving slightly in favor of our clients. Our internal actively. The same holds true for systematic tives, commodities, and securities lending.
all. In MiFID II, just as it was under the rule of transaction cost analysis (TCA) confirms this. internalisers and periodic auctions. These li-
MiFID I, our ultimate goal has always been to quidity sources benefit from the double volume What is the role of the trading desk in the
deliver a true best-in-class service to our Do you see differences in market segments caps. They allow for more flexibility on the one investment process as of today?
clients – internally, our portfolio managers, and trading venues concerning the impact of hand and simultaneously require an enhanced
externally, our investors – and to offer best exe- the new regulatory set of rules? skill set of our traders on the other hand. Trading has become much more crucial in
cution at all times. Reaching this aim is not just the world of asset management. This develop-
another box to tick but requires both deep mar- Most definitely. In lit markets, average spreads So what’s next? Do you see further modifica- ment is not entirely new and we have been
ket insight and strong relationships with other tend to be at levels pretty similar to what we tions from regulators’ perspectives, e.g., playing an active role in it for the last years.
market participants as well as a sophisticated have experienced in 2017. However, order book MiFID III? What we do notice more recently is the inten-
electronic approach. In this context, and in par- depth has diminished substantially. Another sified focus that investors put on a profession-
ticular under the regime of MiFID II, it is key to observation is that due to the implementation of We are in constant exchange with our regulators al high-quality trading desk. From a process
have access to the very best sources of liquidity MiFID II and its double volume caps, dark pool to serve as a partner and consultant in case perspective, top-notch trading capabilities are
in order to fulfill the highest standard of our activity as in multilateral trading facilities is that modified regulatory measures are to be of the highest importance to clients. It appears
best execution policy. reduced substantially. The regulators’ goal to planned and eventually installed. Our objective to be an integral part of the investment
somehow limit dark pool trading has been at is to support the development and improve- process.
What are your main observations? Do you least partially achieved. Looking at new sources ment of a functional regulatory framework.
think that the cost of trading, i.e., your market of liquidity, we notice enhanced market activity. We do this in order to be up to date and to offer Thank you for this interesting conversation.Q-3_2018_efl-News_16 03.07.18 01:20 Seite 10
10 efinancelab | quarterly 03 | 2018
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News
University Award of the DAI Goes to Dr. Haferkorn Prof. Gomber Refuses Offer of University of Luxembourg and Stays in Frankfurt
The “Deutsches Aktieninstitut” (DAI) annually awards outstanding academic research in the field of The University of Luxembourg has offered the “PayPal-FNR PEARL Chair in Digital Financial
capital markets and securities with the DAI-Hochschulpreis. Dr. Martin Haferkorn (layer 2, supervisor Services” to Prof. Gomber (layer 2). The Chair was combined with a PEARL Grant of the Luxembourg
Prof. Gomber) received the award for his dissertation “High-Frequency Trading in Fragmented National Research Fund (FNR) of EUR 5 Million. Prof. Gomber has now decided to refuse this offer
European Equity Markets – Implications for Market Quality”. and stays at Goethe University Frankfurt and at the E-Finance Lab.
Dr. Ringel Wins EHI-Dissertation Award 2018 Daniel Blaseg Receives Best Doctoral Paper Award
On February 28th, the 11th award ceremony of the EHI Science Award 2018 took place in Düsseldorf. Daniel Blaseg has received the Best Doctoral Paper Award at the 8th Leuphana Conference on Entre-
The EHI Science Award recognizes young scientists for their excellent scientific work and co-operation preneurship in Lüneburg, Germany for his manuscript “Consumer Protection under Laissez-Faire
projects. Winner in category “Dissertation” is Dr. Daniel M. Ringel (layer 3, supervisor Prof. Skiera). Regulation”.
TU Darmstadt Dissertation Award for Dr. Björn Richerzhagen
Björn Richerzhagen (layer 1, supervisor Prof. Steinmetz) has received the Dissertation Award for his Selected E-Finance Lab Publications
thesis “Mechanism Transitions in Publish/Subscribe Systems – Adaptive Event Brokering for
Location-based Mobile Social Applications”. The Dissertation Award is provided by the association Gomber, P.; Kauffman, R. J.; Parker, C.; Müller, P.; Bergsträßer, S.; Rizk, A.;
“Freunde der TU Darmstadt” and honors once a year the best dissertations at TU Darmstadt. Weber, B. W.: Steinmetz, R.:
On the Fintech Revolution: Interpreting the Forces The Bitcoin Universe: An Architectural Overview
Prof. Skiera Appointed as Fellow of the European Marketing Academy of Innovation, Disruption and Transformation in of the Bitcoin Blockchain.
At this year’s EMAC conference in Glasgow, the European Marketing Academy will recognize Financial Services. In: Lecture Notes in Informatics (LNI), (2018) 283,
Professor Skiera’s outstanding contributions to the scholarship and practice of marketing and award In: Journal of Management Information Systems, pp. 15-34.
him with a membership among a very selected group of Fellows of the European Marketing Academy 35 (2018) 1, pp. 220-265.
(“EMAC Fellow”). Nguyen, T. A. B.; Rettberg-Päplow, M.;
Hanspal, T.: Meurisch, C.; Meuser, T.; Richerzhagen, B.;
New Colleague at the Chair of Prof. Hackethal The Effect of Personal Financing Disruptions on Steinmetz, R.:
René Bernard has joined the Chair of Prof. Hackethal (layer 3) as an external doctoral student in Entrepreneurship. Complex Services Offloading in Opportunistic
March 2018. He holds a Master’s Degree in Economics from the University of Cologne. During his In: American Finance Association (AFA), Phila- Networks.
doctoral studies he will focus on different influences on the savings and investment behavior of delphia (PA), US, 2018. In: Proceedings of IFIP Networking, Zürich,
individuals. Since 2017, René is working as a research assistant at the Research Centre of the Switzerland, 2018.
Deutsche Bundesbank. Koch, J.; Lausen, J.; Kohlhase, M.:
Towards Internalizing the Externalities of Over- Siering, M.; Deokar, A.; Janze, C. :
Professors Hinz and Skiera Win Sheth Foundation/Journal of Marketing Long-Term Impact Award funding – Introducing a 'Tax' on Crowdfunding Disentangling Consumer Recommendations:
The Sheth Foundation rewarded Professors Hinz and Skiera (layer 3) with the Journal of Marketing Platforms. Explaining and Predicting Airline Recommen-
Award for the long term contributions to the field of marketing for their article Hinz, O., Skiera, In: Proceedings of the 26th European Conference dations Based on Online Reviews.
B., Barrot, C., & Becker, J. U.: “Seeding strategies for viral marketing: An empirical comparison”. on Information Systems (ECIS); Portsmouth, In: Decision Support Systems, (2018) 107,
In: Journal of Marketing, 75 (2011) 6, pp. 55-71. The award honors the article published in the Journal UK, 2018. pp. 52-63.
of Marketing between 2008 and 2012 that has made the largest contribution to the field. The selection
committee honored its more than 450 citations in Google Scholar. For a comprehensive list of all E-Finance Lab publications see http://www.efinancelab.com/publicationsQ-3_2018_efl-News_16 03.07.18 01:20 Seite 11
efinancelab | quarterly 03 | 2018 11
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RESEARCH PAPER: THE ECONOMICS OF PRIVACY
Focusing on the economic value and trade-offs associated with the privacy and disclosure of per-
sonal information, this article reviews the literature on the economics of privacy. The three keys are: E-Finance Lab Quarterly
First, there is no consensus on a single unifying understanding of the economic theory of privacy.
Second, the impact of privacy protection on the individual and societal welfare is context-specific.
Third, due to information asymmetries between consumers and firms regarding the purpose, con-
sequences, and time of the data collection, consumers are unable to make informed decisions about The E-Finance Lab publishes the Quarterly in the form of a periodic
their privacy. This suggests that the protection of personal privacy is emerging as one of the most newsletter which appears four times a year. Besides a number of printed
significant public policy issues. copies, the EFL Quarterly is distributed digitally via E-mail for reasons of
saving natural resources. The main purpose of the newsletter is to provide
Acquisti, A.; Taylor, C.; Wagman, L. latest E-Finance Lab research results to our audience. Therefore, the main
In: Journal of Economic Literature, 54 (2016) 2, pp. 442-492. part is the description of two research results on a managerial level –
complemented by an editorial, an interview, and some short news.
For receiving our EFL Quarterly regularly via E-Mail, please subscribe on
RESEARCH PAPER: EFFECTS OF ONLINE RECOMMENDATIONS our homepage www.efinancelab.de (> news > sign up / off newsletter) as
ON CONSUMERS’ WILLINGNESS TO PAY we need your E-mail address for sending the EFL Quarterly to you.
Alternatively, you can mail your business card with the note “EFL Quarterly”
Recommender systems are an integral part of the online retail environment. In this study, the to the subsequent postal address or send us an E-mail.
authors used three controlled experiments in the context of purchasing digital items to explore the
willingness-to-pay judgments of consumers after being shown personalized recommendations. The Prof. Dr. Peter Gomber
first experiment revealed strong evidence that randomly assigned recommendations affected Vice Chairman of the E-Finance Lab
participants’ willingness to pay, even when controlling for participants’ preferences and demo- Goethe University Frankfurt
graphics. In the second experiment, participants viewed actual system-generated recommenda- Theodor-W.-Adorno-Platz 4
tions that were intentionally perturbed (introducing recommendation error), and similar effects D-60629 Frankfurt am Main
were observed. The third experiment showed that the influence of personalized recommendations
on willingness-to-pay judgments was obtained even when preference uncertainty was reduced newsletter@efinancelab.com
through immediate and mandatory sampling prior to pricing. The results demonstrate the existence
of important economic side effects of personalized recommender systems and inform our under- Further information about the E-Finance Lab is available at
standing of how system recommendations can influence preference judgments. www.efinancelab.com.
Adomavicius, G.; Bockstedt, J. C.; Curley, S. P.; Zhang, J.
In: Information Systems Research, 29 (2018) 1, pp. 84-102.Q-3_2018_efl-News_16 03.07.18 01:20 Seite 12
The E-Finance Lab is a proud member of the House of Finance of Goethe University, Frankfurt.
For more information about the House of Finance, please visit www.hof.uni-frankfurt.de.
THE E-FINANCE LAB IS AN INDUSTRY-ACADEMIC RESEARCH PARTNERSHIP BETWEEN FRANKFURT AND DARMSTADT UNIVERSITIES AND PARTNERS DEUTSCHE BÖRSE GROUP, DZ BANK GROUP, FINANZ INFORMATIK,
IBM, 360T, FACTSET DIGITAL SOLUTIONS, AND USD LOCATED AT THE HOUSE OF FINANCE, GOETHE UNIVERSITY, FRANKFURT.
For further Prof. Dr. Peter Gomber Phone +49 (0)69 / 798 - 346 82 Press contact or visit our website
Vice Chairman of the Fax +49 (0)69 / 798 - 350 07 Phone +49 (0)69 / 798 - 338 62 http://www.efinancelab.com
information E-Finance Lab E-mail gomber@wiwi.uni-frankfurt.de Fax +49 (0)69 / 798 - 339 10
please Goethe University Frankfurt E-mail presse@efinancelab.com
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