The relevance of broker networks for information diffusion in the stock market

Marco Di Maggio, Francesco Franzoni, Amir Kermani and Carlo Sommavilla

Journal of Financial Economics, 2019, vol. 134, issue 2, 419-446

Abstract: This paper shows that the network of relationships between brokers and institutional investors shapes information diffusion in the stock market. Central brokers gather information by executing informed trades, which is then leaked to their best clients. After large informed trades, other institutional investors are significantly more likely to execute similar trades through the same broker, allowing them to capture returns that are twice as large as their normal trading performance. Also indicative of information leakage, the clients of the broker employed by activist investors to execute their trades buy the same stocks just before the filing of the 13D.

Keywords: Broker networks; Institutional investors; Asset prices; Information leakage (search for similar items in EconPapers)
JEL-codes: G12 G14 G24 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (39)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:134:y:2019:i:2:p:419-446

DOI: 10.1016/j.jfineco.2019.04.002

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