How broker ability affects institutional trading costs
The present paper shows that broker research and trade execution ability has a significant impact on the cost of institutional trading. The results reveal that there is significant variation in the ability of brokers to control execution costs. Trades executed by brokers with stronger research ability exhibit a higher permanent price impact, whereas those executed by brokers with better execution ability exhibit a lower temporary price impact. Brokers are also found to specialize on an industry level that gives rise to variation in ability within a brokerage house.
Document Type: Research Article
Affiliations: Finance Discipline, School of Business, Faculty of Economics and Business, University of Sydney, Sydney, 2006, Australia
Publication date: November 1, 2005