Preventing Information Leakage
62 Pages Posted: 10 Apr 2019 Last revised: 23 Sep 2019
Date Written: March 15, 2019
We study the use of multiple brokers by institutions to help mitigate broker information leakage. We document that trades using multiple brokers are larger and more profitable than trades using a single broker, consistent with using multiple brokers being driven by information motives. When conditioning on trade size, we find that trades using multiple brokers have lower price impacts, larger long-term trade profitability, and fewer follower trades than similar single broker trades. The results suggest that some traders execute their best trades using multiple brokers to avoid broker information leakage.
Keywords: brokers, informed trades, trading profits, information leakage
JEL Classification: G14, G18
Suggested Citation: Suggested Citation