Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcast
  • Managing the Future of Work Podcast
  • About Us
  • Book
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Podcasts
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    The Relevance of Broker Networks for Information Diffusion in the Stock Market
    17 Jul 2017Working Paper Summaries

    The Relevance of Broker Networks for Information Diffusion in the Stock Market

    by Marco Di Maggio, Francesco Franzoni, Amir Kermani, and Carlo Sommavilla
    How information is generated by market participants, shared, and incorporated into prices is one of the key questions for understanding how financial markets operate. This study finds that intermediaries play a large role in the acquisition and dissemination of private information, which they extract from order flow and, more generally, from interaction with clients.
    LinkedIn
    Email

    Author Abstract

    This paper shows that the network of relationships between brokers and institutional investors shapes the information diffusion in the stock market. We exploit trade-level data to show that central brokers gather information by executing informed trades, which is then leaked to their best clients. We show that after large informed trades, a significantly higher volume of other institutional investors execute similar trades through the same broker, allowing them to capture higher returns in the first few days after the initial trade. In contrast, we find that when the informed asset manager is affiliated with the broker, such imitation does not occur. Similarly, we show that the clients of the broker employed by activist investors to execute their trades tend to buy the same stocks just before the filing of the 13D. This evidence also suggests that an important source of alpha for fund managers is the access to better connections rather than superior skill.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: June 2017
    • HBS Working Paper Number: HBS Working Paper #18-001
    • Faculty Unit(s): Finance
      Trending
        • 17 Jan 2023
        • In Practice

        8 Trends to Watch in 2023

        • 24 Jan 2023
        • Research & Ideas

        Passion at Work Is a Good Thing—But Only If Bosses Know How to Manage It

        • 10 Jan 2023
        • Research & Ideas

        How to Live Happier in 2023: Diversify Your Social Circle

        • 25 Jan 2022
        • Research & Ideas

        More Proof That Money Can Buy Happiness (or a Life with Less Stress)

        • 27 Jan 2023
        • Op-Ed

        Have We Lost Sight of Integrity?

    Marco Di Maggio
    Marco Di Maggio
    Ogunlesi Family Associate Professor of Business Administration
    Contact
    Send an email
    → More Articles
    Find Related Articles
    • Financial Markets
    • Business and Shareholder Relations
    • Knowledge Dissemination

    Sign up for our weekly newsletter

    Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
    ǁ
    Campus Map
    Harvard Business School Working Knowledge
    Baker Library | Bloomberg Center
    Soldiers Field
    Boston, MA 02163
    Email: Editor-in-Chief
    →Map & Directions
    →More Contact Information
    • Make a Gift
    • Site Map
    • Jobs
    • Harvard University
    • Trademarks
    • Policies
    • Accessibility
    • Digital Accessibility
    Copyright © President & Fellows of Harvard College