Do Brokers Misallocate Customer Trades? Evidence From Futures Markets

Hun Y. Park, Asani Sarkar and Lifan Wu
Additional contact information
Hun Y. Park: University of Illinois at Urbana-Champaign
Lifan Wu: City University of Hong Kong

Finance from University Library of Munich, Germany

Abstract: In the context of futures markets, we study whether brokers allocate more favorable trades to their own accounts, and less favorable trades to their customers. We find that, within a thirty minute trading bracket, brokers on average buy at a lower price and sell at a higher price for their own accounts relative to their customers. We show evidence that brokers' price advantage may be compensation for providing liquidity to the market when brokers trade for their own accounts, but no evidence that they are due to brokers' superior information, or to greater effort by brokers when trading for themselves. Consistent with the idea that, in a competitive market for brokerage services, brokers may pass on some of their profits to customers, we find that brokers who trade for themselves also provide superior execution for their customers, relative to brokers who do not trade for themselves.

Keywords: futures; brokers; trading (search for similar items in EconPapers)
JEL-codes: G12 G13 G18 (search for similar items in EconPapers)
Pages: 41 pages
Date: 1998-01-26
Note: Type of Document - pdf; prepared on PC; to print on HP Laserjet; pages: 41. Office for Futures and Options Research (OFOR) at the University of Illinois at Urbana-Champaign. Working Paper 98-01. For a complete list of OFOR working papers see
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/9801/9801002.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:9801002

Access Statistics for this paper

More papers in Finance from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).