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Manchester Grand Hyatt, Cortez Hill B
International Banking, Economics, and Finance Association
Banks, Markets, and Liquidity
Saturday, Jan. 4, 2020 12:30 PM - 2:15 PM (PDT)
- Chair: John C. Driscoll, Federal Reserve Board
Institutional Brokerage Networks: Facilitating Liquidity Provision
AbstractWe argue that institutional brokerage networks facilitate liquidity provision and mitigate price impact of large non-information motivated trades. We use commission payments to map trading networks of mutual funds and brokers as affiliation networks. We find that central funds outperform peripheral funds, especially as measured by return gap. The outperformance is more pronounced when trading is primarily liquidity driven to accommodate large redemptions. This centrality premium is further strengthened by brokers' incentives to generate greater revenues and by repeated interactions between brokers and funds. By merging daily transactions with quarterly holdings, we confirm that the centrality premium is indeed driven by reduced trading costs, rather than higher interim (intra-quarter) trading performance or profitable information flows from the brokers.
Insider Trading Under the Microscope
AbstractInformed agents play a central role in price formation in financial markets. Theory models offer a variety of predictions on the behavior of such agents; from aggressive and therefore quickly revealing, to stealthy and largely undetectable. I examine these predictions using a comprehensive intraday dataset that contains all orders and trades of a prominent group of privately informed agents -- company insiders. When trading on price-relevant information, insiders usually submit large liquidity-demanding orders, and prices adjust quickly. Consistent with theory, insider aggressiveness is attributable to competition, trading urgency, and the value of information. Back-running by other market participants further increases the speed of price adjustment.
University of Washington
Iman van Lelyveld,
Central Bank of the Netherlands
University of Utah
- C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
- L1 - Market Structure, Firm Strategy, and Market Performance