Preventing Information Leakage

43 Pages Posted: 10 Apr 2019

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Dan Li

The University of Hong Kong - School of Economics and Finance

Matthew Ma

Southern Methodist University

Ryan Riordan

Smith School of Business

Date Written: March 15, 2019

Abstract

Trade information leakage is a prominent feature in modern equity markets. We study the usage of multiple brokers to help mitigate information leakage. We first document that multi-broker trades are larger and more profitable than single-broker trades, consistent with multi-broker trades being likely to be driven by information motives. When conditioning on the trade size, we find that multi-broker trades have smaller price impacts, dramatically larger long-term trade profitability, and a significantly smaller number of followers’ trades in the same direction than matched single-broker trades. It appears that informed traders split their best trading ideas across multiple brokers to avoid the likelihood and impact of broker level information leakage.

Keywords: brokers, informed trades, trading profits, information leakage

JEL Classification: G14; G18

Suggested Citation

Brogaard, Jonathan and Li, Dan and Ma, Matthew and Riordan, Ryan, Preventing Information Leakage (March 15, 2019). Available at SSRN: https://ssrn.com/abstract=3353501 or http://dx.doi.org/10.2139/ssrn.3353501

Jonathan Brogaard (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

HOME PAGE: http://www.jonathanbrogaard.com

Dan Li

The University of Hong Kong - School of Economics and Finance ( email )

Shenzhen
China

Matthew Ma

Southern Methodist University ( email )

6214 Bishop Blvd
Dallas, TX 75275
United States
8019075820 (Phone)

Ryan Riordan

Smith School of Business ( email )

Smith School of Business, Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

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