Tippers and Tippees: Brokers’ Pre-Release of Price-Sensitive Information to Their VIP Clients

Abstract

Using transaction-level data, I analyze information leakage of financial analyst recommendations to their elite clients, as well as characteristics of the institutional investors receiving such advance knowledge. I find that investment managers who have an established relationship with their brokers trade in the direction of the research in the 5-day period before the analyst coverage initiations. My results suggest that clients enjoying a privileged relationship with their broker receive and use the pre-released information in their trades.

Keywords: broker-client relationship, analyst recommendations, institutional trading, private information

JEL Classification: G14, G24