Inside Brokers

101 Pages Posted: 15 Aug 2016 Last revised: 9 Sep 2020

See all articles by Frank Weikai Li

Frank Weikai Li

Singapore Management University - Lee Kong Chian School of Business

Abhiroop Mukherjee

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Rik Sen

University of New South Wales (UNSW)

Date Written: September 7, 2020

Abstract

We identify the broker each corporate insider trades through, and show that analysts and mutual fund managers affiliated with such "inside brokers'" retain a substantial information advantage on the insider's firm, even after these trades are disclosed. Affiliated analysts issue more accurate earnings forecasts, and affiliated mutual funds trade the insider's stock much more profitably than their peers, following insider trades through their brokerage. Our results challenge the prevalent perception that information asymmetry arising from insider trading is acute only before trade disclosure, and suggest that brokers facilitating these trades are in a position to exploit this asymmetry.

Keywords: Insiders, Brokers, Analysts, Mutual Funds, Information Transmission

JEL Classification: G24, G30, G34, G38

Suggested Citation

Li, Frank Weikai and Mukherjee, Abhiroop and Sen, Rik, Inside Brokers (September 7, 2020). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2823353 or http://dx.doi.org/10.2139/ssrn.2823353

Frank Weikai Li

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Abhiroop Mukherjee (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

Rik Sen

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

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