The Value of Intermediation in the Stock Market

Marco Di Maggio, Mark L. Egan and Francesco Franzoni

No 26147, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We estimate a structural model of broker choice to quantitatively decompose the value that institutional investors attach to broker services. Studying over 300 million institutional equity trades, we find that investors are sensitive to both explicit and implicit trading costs and are willing to pay a premium for access to formal and informal research. Formal and informal research account for roughly half of the value generated by brokers. Lastly, we use our model to investigate soft-dollar arrangements, where research and execution services are bundled, and find that such arrangements allow hedge funds and mutual funds to underreport management fees by 10%.

JEL-codes: G14 G2 G23 G24 G28 L14 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-fmk and nep-mst
Note: AP CF IO
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Published as Marco Di Maggio & Mark Egan & Francesco Franzoni, 2021. "The value of intermediation in the stock market," Journal of Financial Economics, .

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