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Institutional Brokerage Networks: Facilitating Liquidity Provision

Author

Listed:
  • Munhee Han
  • Sanghyun (Hugh) Kim
  • Vikram K Nanda

Abstract

We argue that institutional brokerage networks facilitate liquidity provision and mitigate the price impact of large non-information-motivated trades. Using commissions, we map trading networks of mutual funds (institutions) and their brokers. Central funds (institutions) tend to outperform their peripheral counterparts in terms of return gap (execution shortfall). This outperformance is more pronounced when funds experience large outflows and for large trades in less liquid stocks. Central brokers can deliver superior trade execution compared to peripheral brokers, but mainly for central institutions. We use the collapse of Lehman Brothers as a quasi-natural experiment to establish the likely causality of our findings.

Suggested Citation

  • Munhee Han & Sanghyun (Hugh) Kim & Vikram K Nanda, 2024. "Institutional Brokerage Networks: Facilitating Liquidity Provision," The Review of Financial Studies, Society for Financial Studies, vol. 37(9), pages 2903-2935.
    • Handle: RePEc:oup:rfinst:v:37:y:2024:i:9:p:2903-2935.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhae026
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    More about this item

    Keywords

    G14; G23; G24;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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