Does it Matter Who Trades? Broker Identities and the Information Content of Stock Trades
Juhani T. Linnainmaa
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
AFA 2008 New Orleans Meetings Paper
This paper shows that the market reaction to a trade depends on the identity of the broker initiating the trade, controlling for the known determinants of the permanent price impact. I combine microstructure data with investor trading records to reconstruct brokers' customer bases and to examine broker heterogeneity. I find that informed traders are more likely to trade through certain types of brokers and that the market uses all trade characteristics jointly to make inferences about the probability that a trade originates from an informed trader. The permanent price impact of a trade is decreasing in the household-intensity of a broker, indicating that the market perceives households to be trading less frequently on private information. Trade characteristics also matter when they deviate from the historical norm: an unusual trade from a retail broker generates a higher price impact than what it would generate if the trade originated from an institutional broker.
Number of Pages in PDF File: 33
Keywords: Market microstructure, information content of stock trades, investor behavior
JEL Classification: D40, D82, G14working papers series
Date posted: March 20, 2007 ; Last revised: September 22, 2008
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