How Has the Relevance of Institutional Brokerage Changed?

26 Pages Posted: 7 Dec 2016

See all articles by Kingsley Y. L. Fong

Kingsley Y. L. Fong

University of New South Wales - School of Banking and Finance; Financial Research Network (FIRN)

F. Douglas Foster

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

David R. Gallagher

Rozetta Institute

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate); Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2016

Abstract

Institutional brokerage rates have been in decline. We investigate whether this reduction has coincided with a fall in benefits provided by brokers to institutional asset managers. We use trade packages from both active and passive equity funds from 1995 to 2001 and active equity funds from 2002 to 2010. We find that later period active funds recoup a combined 1.75 basis point benefit (from price impact cost recovery and short‐term alpha) per basis point of brokerage cost. Later period active investors saw improved trade price impact and shorter‐term alpha net benefits, relative to earlier period active investors. These results are robust after controlling for trade characteristics and cross‐sectional variation over time. Our findings suggest that brokers innovate to provide valuable services in the subsequent, lower brokerage environment.

Suggested Citation

Fong, Kingsley Y. L. and Foster, F. Douglas and Gallagher, David R. and Lee, Adrian D., How Has the Relevance of Institutional Brokerage Changed? (December 2016). International Review of Finance, Vol. 16, Issue 4, pp. 499-524, 2016. Available at SSRN: https://ssrn.com/abstract=2881021 or http://dx.doi.org/10.1111/irfi.12092

Kingsley Y. L. Fong (Contact Author)

University of New South Wales - School of Banking and Finance ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

F. Douglas Foster

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

David R. Gallagher

Rozetta Institute ( email )

Sydney

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate) ( email )

70 Elgar Road
Melbourne, VIC 3125
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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