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  • Forthcoming
  • Article
  • Journal of Financial Economics

The Value of Intermediation in the Stock Market

By: Marco Di Maggio, Mark Egan and Francesco Franzoni
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Abstract

We estimate a structural model of broker choice to quantitatively decompose the value that institutional investors attach to broker services. Studying over 300 million institutional equity trades, we find that investors are sensitive to both explicit and implicit trading costs and are willing to pay a premium for access to formal and informal research. Formal and informal research account for roughly half of the value generated by brokers. Lastly, we use our model to investigate soft-dollar arrangements, where research and execution services are bundled, and find that such arrangements allow hedge funds and mutual funds to underreport management fees by 10%.

Keywords

Financial Intermediation; Institutional Investors; Research Analysts; Broker Networks; Equity Trading; Institutional Investing

Citation

Di Maggio, Marco, Mark Egan, and Francesco Franzoni. "The Value of Intermediation in the Stock Market." Journal of Financial Economics (forthcoming).
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About The Authors

Marco Di Maggio

Finance
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Mark L. Egan

Finance
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More from the Authors

    • July 2022
    • Journal of Financial Economics

    The Pass-Through of Uncertainty Shocks to Households

    By: Marco Di Maggio, Amir Kermani, Rodney Ramcharan, Vincent Yao and Edison Yu
    • Review of Financial Studies

    The Cross Section of Bank Value

    By: Mark Egan, Stefan Lewellen and Adi Sunderam
    • May 2022
    • Journal of Political Economy

    When Harry Fired Sally: The Double Standard in Punishing Misconduct

    By: Mark Egan, Gregor Matvos and Amit Seru
More from the Authors
  • The Pass-Through of Uncertainty Shocks to Households By: Marco Di Maggio, Amir Kermani, Rodney Ramcharan, Vincent Yao and Edison Yu
  • The Cross Section of Bank Value By: Mark Egan, Stefan Lewellen and Adi Sunderam
  • When Harry Fired Sally: The Double Standard in Punishing Misconduct By: Mark Egan, Gregor Matvos and Amit Seru
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