Performance of Institutional Trading Desks: An Analysis of Persistence in Trading Cost

Review of Financial Studies, 2012, Vol. 2 (25), 557-598.

64 Pages Posted: 23 Sep 2008 Last revised: 3 Jul 2013

Amber Anand

Syracuse University - Whitman School of Management

Paul J. Irvine

Neeley School of Business

Andy Puckett

University of Tennessee, Knoxville

Kumar Venkataraman

Southern Methodist University (SMU) - Finance Department

Date Written: August 1, 2011

Abstract

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.

Keywords: Trading cost, Buy-side Institution, Trading Performance, Broker, Mutual Fund, Alpha

JEL Classification: G14

Suggested Citation

Anand, Amber and Irvine, Paul J. and Puckett, Andy and Venkataraman, Kumar, Performance of Institutional Trading Desks: An Analysis of Persistence in Trading Cost (August 1, 2011). Review of Financial Studies, 2012, Vol. 2 (25), 557-598. . Available at SSRN: https://ssrn.com/abstract=1272040 or http://dx.doi.org/10.2139/ssrn.1272040

Amber Anand

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244
United States

Paul J. Irvine

Neeley School of Business ( email )

Fort Worth, TX 76129
United States

Andy Puckett

University of Tennessee, Knoxville ( email )

437 Stokely Managment Center
Knoxville, TN 37996
United States

Kumar Venkataraman (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States
214-768-7005 (Phone)
214-768-4099 (Fax)

HOME PAGE: http://people.smu.edu/kumar/

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