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  • Article
  • Journal of Financial Economics

The Value of Intermediation in the Stock Market

By: Marco Di Maggio, Mark Egan and Francesco Franzoni
  • Format:Print
  • | Pages:26
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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 145, no. 2A (August 2022): 208–233.
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About The Authors

Marco Di Maggio

Finance
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Mark L. Egan

Finance
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    Ava Labs: Navigating the Next Blockchain

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    Project Helios: Harvesting the Sun

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More from the Authors
  • Ava Labs: Navigating the Next Blockchain By: Marco Di Maggio and Wenyao Sha
  • Cryptocurrency Investing: Stimulus Checks and Inflation Expectations By: Darren Aiello, Scott R. Baker, Tetyana Balyuk, Marco Di Maggio, Mark J. Johnson and Jason Kotter
  • Project Helios: Harvesting the Sun By: Mark Egan and Scott Mayfield
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