Do Brokers' Recommendation Changes Generate Brokerage? Evidence from a Central Limit Order Market

28 Pages Posted: 12 Mar 2019

See all articles by Rob L. Brown

Rob L. Brown

University of Melbourne - Department of Finance; Financial Research Network (FIRN)

H. Chan

University of Melbourne - Department of Finance; Monash University - Department of Accounting

Robert W. Faff

University of Queensland

Yew Kee Ho

National University of Singapore (NUS)

Date Written: March 2019

Abstract

We examine the short‐term response to recommendation changes on the Australian Securities Exchange, a central limit order market. In both central limit order markets and dealer‐driven markets, clients may reward the recommending broker with increased trade volumes. But a central limit order market does not have mandatory market makers and hence provides greater opportunity to free ride. We find evidence supporting the hypothesis that recommending brokers are rewarded with higher trade volumes and brokerage commission. Consistent with the tipping hypothesis, these rewards are concentrated in the period shortly before the release. There is no evidence of free riding.

Keywords: Recommendation changes, Brokerage, Central limit order market, Volume traded

Suggested Citation

Brown, Rob L. and Chan, Howard and Faff, Robert W. and Ho, Yew Kee, Do Brokers' Recommendation Changes Generate Brokerage? Evidence from a Central Limit Order Market (March 2019). Accounting & Finance, Vol. 59, Issue 1, pp. 115-142, 2019. Available at SSRN: https://ssrn.com/abstract=3349310 or http://dx.doi.org/10.1111/acfi.12255

Rob L. Brown (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Financial Research Network (FIRN)

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

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

Howard Chan

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Yew Kee Ho

National University of Singapore (NUS)

Bukit Timah Road 469 G
Singapore, 117591
Singapore

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