Can Investors Benefit from Market Transparency? - An Asset Allocation Perspective

48 Pages Posted: 15 Mar 2012 Last revised: 24 May 2013

See all articles by Michalis Vasios

Michalis Vasios

European Securities and Markets Authority

Ingmar Nolte

Lancaster University - Department of Accounting and Finance

Richard Payne

City University London - Sir John Cass Business School

Date Written: February 27, 2012

Abstract

A current debate in finance concerns transparency in financial markets and the disclosure of counterparty identity information. We use a simple mean-variance framework and data from Helsinki Stock Exchange to explore the asset allocation implications of post-trade market transparency. We find that broker identity conveys information that is economically significant. A mean-variance investor can benefit remarkably, up to 36% (annualized) percentage points for the most parsimonious forecasting model, from knowing who trades. A second result is the substantial variation in the information content of order flow at the broker level. We show that the predictive power of broker customer order flow can be attributed to observable broker-specific characteristics: market share, daily volume, investment style and degree of sophistication.

Keywords: market transparency, asset allocation, broker heterogeneity, customer order flow

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

Suggested Citation

Vasios, Michalis and Nolte, Ingmar and Payne, Richard G., Can Investors Benefit from Market Transparency? - An Asset Allocation Perspective (February 27, 2012). Available at SSRN: https://ssrn.com/abstract=2022612 or http://dx.doi.org/10.2139/ssrn.2022612

Michalis Vasios (Contact Author)

European Securities and Markets Authority ( email )

103 Rue de Grenelle
Paris, 75007
France

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

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