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Broker Network Connectivity and the Cross-Section of Expected Stock Returns

Author

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  • Murat Tiniç
  • Ahmet Sensoy
  • Muge Demir
  • Duc Khuong Nguyen
Abstract
We examine the relationship between broker network connectivity and stock returns in an order-driven market. Considering all stocks traded in Borsa Istanbul between January 2006 and November 2015, we estimate the monthly density, reciprocity and average weighted clustering coe!cient as proxies for the broker network connectivity. Our firm-level cross-sectional regressions indicate a negative and significant predictive relationship between connectivity and one-month ahead stock returns. Our analyses also show that stocks in the lowest connectivity quintile earn 1.1% - 1.8% monthly return premiums. The connectivity premium is stronger in terms of both economic and statistical significance for small size stocks.

Suggested Citation

  • Murat Tiniç & Ahmet Sensoy & Muge Demir & Duc Khuong Nguyen, 2021. "Broker Network Connectivity and the Cross-Section of Expected Stock Returns," Working Papers 2021-002, Department of Research, Ipag Business School.
    • Handle: RePEc:ipg:wpaper:2021-002
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    More about this item

    Keywords

    Stock market; trading networks; broker networks; network connectivity; pricing factors;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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