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Inside brokers

Author

Listed:
  • Li, Frank Weikai
  • Mukherjee, Abhiroop
  • Sen, Rik

Abstract

We identify the broker each corporate insider trades through, and find that analysts and mutual fund managers affiliated with such “inside brokers” have a substantial information advantage on the insider’s firm. Affiliated analysts issue more accurate earnings forecasts, and affiliated mutual funds trade the insider’s stock more profitably than their peers, following insider trades through their brokerage. Notably, this advantage persists well after these insider trades are publicly disclosed. Our results challenge the prevalent perception that information asymmetry arising from insider trading is acute only before trade disclosure, and suggest that brokers facilitating these trades are in a position to exploit this asymmetry.

Suggested Citation

  • Li, Frank Weikai & Mukherjee, Abhiroop & Sen, Rik, 2021. "Inside brokers," Journal of Financial Economics, Elsevier, vol. 141(3), pages 1096-1118.
    • Handle: RePEc:eee:jfinec:v:141:y:2021:i:3:p:1096-1118
    DOI: 10.1016/j.jfineco.2021.05.029
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    References listed on IDEAS

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    More about this item

    Keywords

    Analysts; Mutual funds; Insiders; Brokers; Information transmission;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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