Institutional trading and soft dollars

Jennifer S. Conrad, Kevin M. Johnson, Sunil Wahal

Research output: Contribution to journalArticle

58 Scopus citations

Abstract

Proprietary data allow us to distinguish between institutional investors' orders directed to soft-dollar brokers and those directed to other types of brokers. We find that soft-dollar brokers execute smaller orders in larger market value stocks. Allowing for differences in order characteristics, we estimate the incremental implicit cost of soft-dollar execution at 29 (24) basis points for buyer-(seller-) initiated orders. For large orders, incremental implicit costs are 41 (30) basis points for buys (sells). However, we document substantial variability in these estimates, and research services provided by soft-dollar brokers may at least partially offset these costs.

Original languageEnglish (US)
Pages (from-to)397-416
Number of pages20
JournalJournal of Finance
Volume56
Issue number1
DOIs
StatePublished - Feb 2001
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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