Spring 2021 Newsletter

Welcome to our Spring 2021 Newsletter

About the Leir Research Institute

The Henry J. and Erna D. Leir Research Institute for Business, Technology, and Society (LRI) creates value by integrating research and education to support economic and policy impacts that foster sustainable economic development, addressing critical global challenges to corporate and business continuity and growth.

The LRI operates in support of the NJIT 2025 four pillars: Diversity, Sustainability, Recognition, and Transformation. In coordination with the NJIT 2025 strategic plan, the LRI seeks to 1) promote collaborative research, 2) foster innovation and entrepreneurship, and 3) promote partnerships.

The vision of Henry J. and Erna D. Leir Research Institute for Business, Technology, and Society is to become recognized for business research that inclusively and collaboratively engages our academic, corporate, governmental, and non-profit partners. The Leir Research Institute will be a perpetual legacy honoring the memories of Henry J and Erna D. Leir and will also support the NJIT Martin Tuchman School of Management as it integrates academic research with important societal needs to solve critical societal problems.

The Henry J. and Erna D. Leir Research Institute for Business, Technology, and Society's research builds upon and leverages decades of NJIT experience and intellectual capital in the fields of sustainability and industrial ecology, environmental science, operations management and decision analytics, organizational behavior, and business data science.

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Leir Center for Financial Bubble Research

The Leir Center for Financial Bubble Research seeks to understand through quantitative and qualitative research how a financial bubble can be identified including its stages of development and what policies can best manage its impacts.

Retail Investors: Naïve or Sophisticated?

By Zhipeng Yan

Download the complete paper here.

Prior to 2021, some big-name short sellers, such as Citron Research and Muddy Waters, had been successfully employed a nonconventional arbitrage strategy. They publicly revealed their valuable information to induce the target’s shareholders to sell, thereby accelerating price discovery. They produced detailed reports, which tend to focus on questionable governance and accounting practices of targets and often include recorded phone calls, videos and photographs, facts that are hard, if not impossible, to dismiss. Financial economists Alexander Ljungqvist and Wenlan Qian (2016) studied 124 short-sale campaigns by 31 short-sellers in the United States between 2006 and 2011. They showed that investors respond strongly to the information. Share prices fall by an aggregate $14.8 billion.

This strategy had been working fairly well until they met their match in the fight of GameStop. A large group of retail investors from the Reddit page r/wallstreetbets in January 2021 gobbled up shares from GameStop, sending the price surging by 1,500% by January 27 over the course of two weeks and forcing Andrew Left, founder of Citron Research, to call it quits. Basically, retail investors, led by a few sophisticated individual investors, turned the nonconventional strategy of short sellers on its head. Millions of retail investors connected with each other on Reddit and chat forums, shouted it from the rooftops: buy GameStop!

In his 2013 bestseller, “David and Goliath”, Malcolm Gladwell examines what happens when ordinary people confront giants – powerful opponents of all kinds. Goliath was an infantryman. He was expecting a hand-to-hand combat. “It never occurred to him that the battle would be fought on anything other than those terms, and he prepared accordingly”. David, the shepherd boy, thought differently. He decided to fight Goliath the same way he had learned to fight wild animals – as a slinger. In a battle, slingers beat infantry, hands down. “Goliath had as much chance against David,” Gladwell quoted the historian Robert Dohrenwend, “as any Bronze Age warrior with a sword would have had against an [opponent] armed with a .45 automatic pistol.”

In the fight of GameStop, Andrew Left, a Goliath-like investor, didn’t expect that tens of thousands of retail investors-Davids could openly ‘collude’ via Reddit and other social media platforms. It never occurred to him that investors could do things like that. And short sellers had their Achilles Heel or Goliath’s exposed forehead, if you prefer, – approximately 140% of GameStop’s public float had been sold short in January 2021, indicating a significant number of shorted shares had been re-lent and shorted more than once.

Retail investors are often deemed as naïve, psychologically biased, and otherwise ill-informed. In recent years, a nascent literature has started to challenge this conventional wisdom. For example, in a survey study of clients of Vanguard Group, Giglio et al. (2019) examine how individual investors make decisions. They show them, overall, to be patient and prudent. Kelley and Tetlock (2013) find that net buying by retail investors positively predict firms’ monthly stock returns with no evidence of return reversal, and retail investors’ collective actions contribute to market efficiency. 

In addition, the potential power of individuals has risen exponentially in the digital era of mobile communications and social media. A tweet or a video posted by an individual can possibly cost a company tens of millions of dollars[1]. My co-authors and I (2020) illustrate that retail investors in China can coordinate their actions intentionally or unintentionally with the help from internet and social media platforms and exert a strong influence on a company.

James Surowiecki argues eloquently in his best-selling The Wisdom of Crowds, that the aggregation of information in groups, resulting in decisions that are often better than could have been made by any single member of the group.However, whether or not pools of individual judgments can do well depends on whether the individual observations are independent and their errors uncorrelated. Daniel Kahneman in his Thinking, Fast and Slow, points out that “if the observers share a bias, the aggregation of judgments will not reduce it. Allowing the observers to influence each other effectively reduces the size of the sample, and with it the precision of the group estimate.”

In the case of GameStop, retail investors’ observations or judgments are NOT independent. But the large base of retail investors suggests that some of the more willing and sophisticated individuals could have enough expertise to dig out valuable investment opportunities. That is, crowds can still be wise even when judgments are not independent. Keith Gill is such a willing and sophisticated retail investor. Gill, known on Reddit by his screen name “DeepF***ingValue” and the YouTube and Twitter alias “Roaring Kitty”, is a marketing professional and CFA (Chartered Financial Analyst). He purchased around $53,000 in call options on GameStop’s stock in 2019[2]. He shared information on his investment regularly. 

While retail investors’ behavior looked crazy, it, in my mind, was actually rather rational. Let’s assume you have an opportunity to play a game. In order to play the game, you need to put down a certain amount of money. if you win, you make 20 times of your original money; if you lose, you lose your money. Will you play? 

I don’t know about you. I will play this game if the following two conditions are met. First, how much money do I need to throw in initially? Second, what are the odds of winning? If the amount of money I could possibly lose is a small fraction of my wealth and if the odds are reasonable, say 30%, I will play the game!

Jim Cramer, the hose of Mad Money of CNBC, insists that a portion of one’s assets be devoted to pure speculation. “That way you can be truly diversified, own some solid blue chips, some good dividend yields from many groups and yet still have that lottery ticket that can’t hurt you and can make you rich in a quick stroke.”

I tend to agree with him in this regard. How about you?

Virtual Annual Conference and Summer Symposium 2021

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Research Spotlights

Jasmine Chang

Capacity reallocation via sinking high-quality resource in a hierarchical healthcare system

This paper studies the capacity reallocation in a hierarchical medical ecosystem via sinking high-quality resource from high-level hospitals to low-level hospitals. To facilitate the capacity sinking, we develop two payment schemes: fee-for-capacity (FFC) and performance payment (PP). Under the FFC scheme, the low-level hospital always pays a unit capacity sinking price to the high-level hospital, whereas under the PP scheme, the reallocation price is paid contingent on the increased patient visits at the low-level hospital due to capacity sinking. By considering the profit- and utility-maximizing behaviors of strategic parties, we build a four-stage Stackelberg sequential game model within a queuing framework to derive the equilibrium results in terms of the low-level hospital’s capacity, the high-level hospital’s capacity sinking rate, and the funder’s capacity sinking price. In the absence of funder’s coordination, it is shown that any increase in sinking price always reduces the capacity sinking rate. In the presence of funder’s coordination, we find that: (1) the payment schemes under study will not alter the efficiency or coordination of the overall healthcare systems; (2) for the setting with a high perceived value by patients, under each payment scheme, the capacity sinking program is efficient to increase the high-level hospital’s profit and the social welfare as well, but it lowers the patient visit rate at the low-level hospital; (3) for the setting with a higher difference between the patients’ perceived values at the two levels of hospitals, the capacity sinking program is efficient to increase the patient visit rate at the low-level hospital and the social welfare as well, but it sacrifices the high-level hospital’s profit. Finally, numerical studies provide more useful managerial insights.

J. Wang, Z. Li, J. Shi, A. Chang, “Capacity Reallocation via Sinking High-Quality Resource in a Hierarchical Healthcare System”, Annals of Operations Research (ANOR), 2021.

Hospital referral and capacity strategies in the two-tier healthcare systems

Healthcare referral has been widely advocated and adopted through the implementation of the two-tier healthcare systems whereby patients are transferred from a comprehensive hospital provider (CHP) to a primary hospital provider (PHP). However, operationally, exactly how to implement the healthcare referral program remains a challenging research question, especially when considering the possibility of patient revisits and the coordination needed between the CHP and PHP. To address such a challenge, this paper considers the two-tier healthcare systems consisting of a CHP and a PHP. By establishing a three-stage Stackelberg game within a queuing framework among the CHP, the PHP, and their patients, we first investigate the equilibrium strategy in terms of the CHP’s referral rate and the PHP’s capacity level, and then examine the impact of revisit rates and referral payments (RP) on the healthcare system and the equilibrium outcomes (e.g., expected utility, social welfare, and waiting times). Two major findings of our study are: (1) both the equilibrium referral rate and the equilibrium capacity first increase and then decrease according to the revisit rate; in addition, the patient referral process always improves the PHP’s performance but is likely to sacrifice the social welfare of the CHP. (2) There exists an RP threshold value such that if the RP is below the threshold, then all the permitted patients should be referred and the system performance will be enhanced, in which case a win-win situation in terms of expected utilities can be attained that benefits all the stakeholders, i.e., the CHP, the PHP, and the patients. Otherwise, only a portion of the permitted patients can be referred, and an increase in RP always reduces the efficiency of the healthcare delivery system, i.e., a higher RP mitigates the operational performance of the healthcare system. Our analysis sheds light on how to implement a healthcare referral scheme.

J. Wang, Z. Li, J. Shi, A. Chang, “Hospital referral and capacity strategies in the two-tier healthcare systems”, Omega, the International Journal of Management Science, Volume 100, Article 102229, 2021.

Dynamics of outward FDI and productivity spillovers in logistics services industry: Evidence from China

China’s burgeoning connectivity and alignment with the international logistics system through Foreign Direct Investment (FDI) has powerful developmental implications for the domestic Logistics Services Industry (LSI). However, whether and to what extent the Outward FDI (OFDI) influences the domestic LSI remains an untapped research area. This study attempts to quantify the OFDI-induced productivity spillover effects in the context of China’s LSI by leveraging the most up-to-date data in conjunction with advanced econometric techniques. Our study reveals that the OFDI of logistics enterprises poses a distinctly positive impact on productivity growth in the logistics industry, and that this impact has been further strengthened since the launch of the Belt and Road Initiative. We also demonstrate a long-term bidirectional causality between the logistics enterprises’ OFDI and the growth of productivity in the domestic LSI. It implies that enhancing global connectivity and supply chain collaborations requires an effective and efficient logistics operation and management, which in turn provides more opportunities to accrue positive productivity spillovers. The results remain robust with various datasets, specifications, and estimators. The study provides novel insights into the improvement of logistics efficiency through OFDI-facilitated technological spillovers and resource acquisition. With a better understanding of the implications and effectiveness of the Go-Global strategies, the findings can be leveraged as guidelines to assist in making informed decisions for the further development of domestic logistics, as well as for cross-border investments.

U. Ali, Y. Li, J. Wang, X. Yue, A. Chang, “Dynamics of Outward FDI and productivity spillovers in logistics services industry: Evidence from China”, Transportation Research Part E: Logistics and Transportation Review, 2021.

Jorge Fresneda Fernandez

Structural topic modelling segmentation: a segmentation method combining latent content and customer context

This research introduces a method for segmenting customers using Structural Topic Modelling (STM), a text analysis tool capable of capturing topical content and topical prevalence differences across customers while incorporating metadata. This approach is particularly suitable for contexts in which textual data is either a critical component or is the only data available for segmentation. The ability to incorporate metadata by using STM provides better clustering solutions and supports richer segment profiles than can be produced with typical topic modelling approaches. We empirically illustrate the application of this method in two contexts: 1) a context in which related metadata is readily available; and 2) a context in which metadata is virtually non-existent. The second context exemplifies how ad-hoc generated metadata can increase the utility of the method for identifying distinct segments.

Fresneda, J. E., Burnham, T. A., & Hill, C. H. (Forthcoming). Structural topic modelling segmentation: a segmentation method combining latent content and customer context. Journal of Marketing Management, 1-21.

What retailers need to understand about website inaccessibility and disabled consumers: Challenges and opportunities

This research uniquely contributes to the marketing policy literature by illuminating the widespread yet seldom studied problem of online inaccessibility of retail websites affecting approximately 30 million disabled Americans. When a website is not designed to be navigated easily or is not compatible with assistive technology such as a screen‐reader, these potential customers are not able to independently search for information and conduct transactions. Blind and low vision participants in an empirical study provide their opinions regarding accessibility policy issues and reveal that their frustrations with inaccessible retail websites may result, not only in avoidance of the retailer in its different sales channels but also in antifirm behaviors driven by negative attitudes toward perceived retailer accessibility/disability policy that spur feelings of online marketplace discrimination. Using two different evaluation tools, the top 100 retailers in the United States were evaluated on the accessibility of their websites over the past 4 years (2015–2018). Results show that most websites contain many design errors making navigation very difficult or even impossible for vision impaired consumers. The argument is made that online retailers who proactively address these inaccessibility issues on their websites may significantly increase their customer base and profitability.

Cohen, A. H., Fresneda, J. E., & Anderson, R. E. (2020). What retailers need to understand about website inaccessibility and disabled consumers: Challenges and opportunities. Journal of Consumer Affairs, 54, 854–889.