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

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  • Tinic, Murat
  • Sensoy, Ahmet
  • Demir, Muge
  • Nguyen, Duc Khuong

Abstract

We examine the relationship between broker network connectivity and stock returns in an order-driven market. Considering all stocks traded in Borsa Istanbul between January 2006 and November 2015, we estimate the monthly density, reciprocity and average weighted clustering coefficient as proxies for the broker network connectivity. Our firm-level cross-sectional regressions indicate a negative and significant predictive relationship between connectivity and one-month ahead stock returns. Our analyses also show that stocks in the lowest connectivity quintile earn 1.0% - 1.6% monthly return premiums. The connectivity premium is stronger in terms of both economic and statistical significance for small size stocks.

Suggested Citation

  • Tinic, Murat & Sensoy, Ahmet & Demir, Muge & Nguyen, Duc Khuong, 2020. "Broker Network Connectivity and the Cross-Section of Expected Stock Returns," MPRA Paper 104719, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:104719
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    More about this item

    Keywords

    Stock market; trading networks; broker networks; network connectivity; pricing factors.;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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