Professor Andriy Shkilko appointed Laurier Research Chair in Financial Markets

Aug. 12, 2024

Financial markets are in a constant state of flux. Andriy Shkilko compares them to a “smart” organism: they understand the environment they are in and predict how the environment will change, making them an ever-moving target for regulators. This evolving landscape demands innovative strategies and continuous learning to ensure financial systems remain healthy. 

Shkilko, a professor of Finance at Wilfrid Laurier University’s Lazaridis School of Business and Economics, has spent his career studying how society has designed the process of exchanging assets. As the Canada Research Chair (CRC) in Financial Markets, his research explored the intricacies of financial markets, stock exchanges and trading processes. Shkilko’s second five-year term as CRC came to an end in June. Now, he will build on his research agenda as the Laurier Research Chair in Financial Markets.

The Laurier Research Chair program enables CRCs who have completed their final terms and achieved significant national and international recognition to gradually return to teaching duties while remaining productive researchers.

Shkilko frequently collaborates with market regulators in Canada and the United States, sharing information and feedback. For the past 15 years, he has been closely tracking the evolution of financial markets as they became almost exclusively electronic and automated. His research revealed some of the shortcomings of digital trading, including the propensity of the fastest traders to harm their slower counterparts, enabling regulators and firms operating automated systems to optimize performance.

Shkilko is currently studying the trading practices of retail investors, or non-professionals who invest their own money. Until recently, it was unknown how well the market structure for retail market participants was functioning.

Unlike Canada, the United States separates retail flows from institutional flows. Given that two companies control 70 per cent of the United States retail trade sector and have significant market power, there was concern that retail trading costs were being artificially inflated. However, Shkilko and his colleagues demonstrated that this was not the case.

Due to their size, the two dominant American firms typically generate surpluses in an environment that rewards economies of scale. Shkilko found that retail brokers play a critical role in ensuring this excess goes back to individual investors rather than the companies themselves, highlighting that both the industry and clients benefit from this system.

“The criticism got so loud in 2022 that the United States government was considering revamping its entire national retail market,” says Shkilko. “Our research helped prove that those concerns were misplaced. Even if it looks suspicious, it functions very well.”

Shkilko demonstrated that one of the alternatives – implementing the Canadian system’s framework – would be less effective. He concluded that Canada should adopt the American retail market structure rather than the other way around.

As Shkilko moves forward as a Laurier Research Chair, he plans to continue examining retail trading and how financial markets are intermediated. The emerging cryptocurrency markets also offer an abundance of research questions to answer.

“There is a lot to understand about crypto markets because they’re so new and inventive,” says Shkilko. “These are market structures we have never seen before, compelling us to think about how traditional markets might be altered.”