Review of Financial Studies Vol. 37 No. 9 2024

Institutional Brokerage Networks: Facilitating Liquidity Provision

Munhee Han¹; Sanghyun Kim²; Vikram K. Nanda³

¹ Texas Tech University , USA · ² Wilfrid Laurier University , Canada · ³ University of Texas at Dallas, USA

Abstract

We argue that institutional brokerage networks facilitate liquidity provision and mitigate the price impact of large non-information-motivated trades. Using commissions, we map trading networks of mutual funds (institutions) and their brokers. Central funds (institutions) tend to outperform their peripheral counterparts in terms of return gap (execution shortfall). This outperformance is more pronounced when funds experience large outflows and for large trades in less liquid stocks. Central brokers can deliver superior trade execution compared to peripheral brokers, but mainly for central institutions. We use the collapse of Lehman Brothers as a quasi-natural experiment to establish the likely causality of our findings.

DOI

10.1093/rfs/hhae026

Volume

37

Issue

9

Pages

2903-2935

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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