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Individual Investors and Broker Types

Published online by Cambridge University Press:  09 June 2014

Kingsley Y. L. Fong ,
David R. Gallagher  and
Adrian D. Lee
Kingsley Y. L. Fong
Affiliation:
k.fong@unsw.edu.au, School of Banking and Finance, UNSW Australia Business School, UNSW Australia (University of New South Wales), Sydney 2052, Australia
David R. Gallagher
Affiliation:
david.gallagher@cifr.edu.au, Centre for International Finance and Regulation, and UNSW Business School, UNSW Australia, and Macquarie Graduate School of Management, and Capital Markets CRC Limited, Sydney, NSW 2000, Australia
Adrian D. Lee
Affiliation:
adrian.lee@uts.edu.au, Finance Discipline Group, University of Technology, Sydney, NSW 2007, Australia.
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Abstract

We study the informativeness of trades via discount and full-service retail brokers. We find that trades via full-service retail brokers are statistically and economically more informative than are trades via discount retail brokers. This finding holds in every year over the 12-year sample period and in various subsamples. We also find that past returns, volatility, and news announcements positively relate to the net volume of discount retail brokers, but these variables are unrelated to the net volume of full-service retail brokers. Our results suggest that broker type selection bias is an important consideration in studying individual investors’ trades.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 49 , Issue 2 , April 2014 , pp. 431 - 451
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2014 

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