Knowledge that Transforms

[Using a proprietary dataset of institutional investors' equity transactions, we document that institutional trading desks can sustain relative performance over adjacent periods.We find that trading-desk skill is positively correlated with the performance of the institution's traded portfolio, suggesting that institutions that invest resources in developing execution abilities also invest in generating superior investment ideas. Although some brokers can deliver better executions consistently over time, our analysis suggests that trading-desk skill is not limited to a selection of better brokers. We conclude that the trade implementation process is economically important and can contribute to relative portfolio performance.]

[Institutions often have access to corporate inside information through their connections, but relatively little is known about the extent to which they exploit their informational advantage through short-term trading. We employ broker-level trading data to systematically examine possible cases of connected trading. Despite examining the issue from multiple angles, we are unable to find much evidence to support that investment bank clients take advantage of connections through takeover advising, IPO and SEO underwriting, or lending relationships. In contrast to recent academic literature and popular press, our findings suggest that institutional investors are reluctant to use inside information in traceable manners.]