Profiting from Mimicking Strategies in Non-Anonymous Markets

44 Pages Posted: 24 Apr 2011 Last revised: 24 May 2013

See all articles by Ingmar Nolte

Ingmar Nolte

Lancaster University - Department of Accounting and Finance

Richard Payne

City University London - Sir John Cass Business School

Michalis Vasios

Norges Bank Investment Management (NBIM)

Date Written: May 24, 2013

Abstract

We explore the information content of counterparty identities and how their disclosure can be exploited by other investors in a post-trade transparent market. Using data from the Helsinki Stock Exchange, we form dynamic mean-variance strategies with daily rebalancing which condition on the net flow of individual brokers. We find that investors can benefit greatly, up to 36% in annualized risk adjusted returns, from knowing who has been trading. We demonstrate a link between the information content of broker order flow and the sophistication of their clients. Brokers who have clients that trade with a momentum style or who are predominantly institutions or foreign investors have much more informative flow than do others. In the Finnish setting, this means that brokers with large market share have uninformative flows.

Keywords: Market Transparency, Asset Allocation, Broker Heterogeneity, Customer Order Flow

JEL Classification: C53, G11, G14, G18, G24

Suggested Citation

Nolte, Ingmar and Payne, Richard G. and Vasios, Michalis, Profiting from Mimicking Strategies in Non-Anonymous Markets (May 24, 2013). Available at SSRN: https://ssrn.com/abstract=1820324 or http://dx.doi.org/10.2139/ssrn.1820324

Ingmar Nolte

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Richard G. Payne

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Michalis Vasios (Contact Author)

Norges Bank Investment Management (NBIM) ( email )

Queensberry House
3 Old Burlington Street
London, W1S 3AE
United Kingdom

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