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Profiting from Mimicking Strategies in Non-Anonymous Markets

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  • Vasios, Michalis
  • Payne, Richard
  • Nolte, Ingmar

Abstract

We explore the information content of counterparty identities and how their disclosure can be exploited by other investors in a post-trade transparent market. Using data from the Helsinki Stock Exchange, we form dynamic mean-variance strategies with daily rebalancing which condition on the net flow of individual brokers. We find that investors can benefit greatly, up to 36% in annualized risk adjusted returns, from knowing who has been trading. We demonstrate a link between the information content of broker order flow and the sophistication of their clients. Brokers who have clients that trade with a momentum style or who are predominantly institutions or foreign investors have much more informative flow than do others. In the Finnish setting, this means that brokers with large market share have uninformative flows.

Suggested Citation

  • Vasios, Michalis & Payne, Richard & Nolte, Ingmar, 2015. "Profiting from Mimicking Strategies in Non-Anonymous Markets," MPRA Paper 61710, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:61710
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    References listed on IDEAS

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    Cited by:

    1. Benos, Evangelos & Payne, Richard & Vasios, Michalis, 2016. "Centralized trading, transparency and interest rate swap market liquidity: evidence from the implementation of the Dodd-Frank Act," Bank of England working papers 580, Bank of England.

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    More about this item

    Keywords

    Market Transparency; Asset Allocation; Broker Heterogeneity; Customer Order Flow; Forecasting.;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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