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Examining the Dark Side of Financial Markets: Do Institutions Trade on Information from Investment Bank Connections?

John Griffin¹; Tao Shu²; Selim Topaloglu³

¹ The University of Texas at Austin · ² University of Georgia · ³ Queen's University

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.

DOI

10.1093/rfs/hhs058

Volume

25 (7)

Pages

2155-2188

Language

en

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BibTeX

Sources

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