Broker Network Connectivity and the Cross-Section of Expected Stock Returns

76 Pages Posted: 25 Mar 2022

See all articles by Murat Tiniç

Murat Tiniç

Kadir Has University

Ahmet Şensoy

Bilkent University

Muge Demir

European Union - European Investment Fund

Duc Khuong Nguyen

IPAG Business School

Abstract

We examine the systematic impact of broker network connectivity on future returns in a centralized limit order book (CLOB) market. For all stocks traded in Borsa Istanbul between March 2005 and November 2015, we estimate network density, reciprocity, and average weighted clustering coefficients as proxies for the broker network connectivity. Our results indicate a negative and significant predictive relationship between connectivity and one-month ahead returns. Stocks in the lowest connectivity quintile earn 1.2% - 1.8% monthly return premiums. Intraday panel regressions document that broker connectivity is associated with more efficient diffusion of information, even for stocks traded in CLOB markets.

Keywords: Limit order book, trading networks, broker networks, network connectivity, pricing factors

Suggested Citation

Tiniç, Murat and Şensoy, Ahmet and Demir, Muge and Nguyen, Duc Khuong, Broker Network Connectivity and the Cross-Section of Expected Stock Returns. Available at SSRN: https://ssrn.com/abstract=4066241 or http://dx.doi.org/10.2139/ssrn.4066241

Murat Tiniç (Contact Author)

Kadir Has University ( email )

Istanbul
Turkey

Ahmet Şensoy

Bilkent University ( email )

06533 Bilkent, Ankara
Turkey

Muge Demir

European Union - European Investment Fund ( email )

Luxembourg City, 2968
Luxembourg

Duc Khuong Nguyen

IPAG Business School ( email )

184 BD Saint Germain
Paris, 75006
France

HOME PAGE: http://www.ipag.fr/en/

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