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Photo: Omar Marques/SOPA Images/LightRocket via Getty Images

Is payment for order flow (PFOF) bad for investors? Absolutely not, according to a new paper from S.P. Kothari and Eric So of MIT.

What's new: PFOF is back in the news, now that Public has come out with data showing that the alternative — trading directly on exchanges — can result in significantly better execution quality.

  • The MIT paper — which was commissioned and paid for by Robinhood — pushes back against that conclusion.

What they found: The researchers found that the price improvement for retail investors using Robinhood was better than the price improvement that institutional investors receive when they trade small lots on public exchanges.

  • Be smart: As So of MIT tells Axios, that's because "market makers know they are unlikely to be trading with a sophisticated institutional investor with an information advantage."

The big picture: Retail investors get better execution than institutional investors. The new paper shows that decisively.

  • What's still up in the air, however, is whether retail investors are better served by the Robinhood PFOF model, or by the Public model of trading on exchanges.
  • Public has been making a concerted effort to find on-exchange counterparties who know that they're trading with retail investors rather than smart institutions, and are therefore likely to offer better prices. The NYSE and IEX exchanges already make that possible, and such setups are likely to expand.

The bottom line: Both models are good for retail investors, who now live in a blissful world where $0 trading fees are standard. The differences between the two models, if any, are always going to be small.

Go deeper

Treasury yields rise as Omicron economic concerns fade

Expand chart
Data: FactSet; Chart: Axios Visuals

The yield on the 10-year Treasury note has made a round trip since we first learned about the Omicron variant.

Why it matters: Trading in the 10-year note provides a decent thumbnail sketch of the financial hivemind's expectations for economic growth and inflation over the next decade. It's telling us that Omicron's economic disruption, like its health impact, looks fairly mild.

Updated 20 mins ago - Economy & Business

Janet Yellen co-opts Reaganomics phrase for new Davos speech

Treasury Secretary Janet Yellen at a speech this week. Photo: Alex Wong/Getty Images

The U.S. needs to focus on increasing its productive potential, Treasury Secretary Janet Yellen told world leaders Friday, calling for what she terms "modern supply side economics."

Why it matters: She co-opted a phrase traditionally used by political conservatives to describe low-tax and deregulatory policies — and framed the Biden administration's initiatives as the best path forward to achieve greater national prosperity.

National Archives releases Trump White House records to Jan. 6 panel

Photo: Chip Somodevilla/Getty Images

The National Archives on Thursday evening released records of former President Trump's White House to the House Jan. 6 Select Committee, the agency said.

Why it matters: The committee now has documents that Trump attempted to keep hidden, arguing that their release would undermine his executive privilege.