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

Marco Di Maggio; Francesco A. Franzoni; Amir Kermani; Carlo Sommavilla

doi:10.1016/j.jfineco.2019.04.002

Journal of Financial Economics Vol. 134 No. 2 2019

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

Marco Di Maggio¹; Francesco A. Franzoni²; Amir Kermani³; Carlo Sommavilla^4,2

¹ Harvard Business School and NBER, 25 Harvard Way, Baker Library 265, Boston, MA 02163, United States · ² Swiss Finance Institute · ³ University of California, Berkeley · ⁴ University of Geneva

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.

DOI: 10.1016/j.jfineco.2019.04.002
Volume: 134
Issue: 2
Pages: 419-446
Language: en
Sources: bibtex:phds-export.bib openalex crossref

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

Abstract

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