Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments May 20, 2020 erstellt
Description:
Most brokerage firms are owned by publicly traded financial conglomerates. As much as 5% of the stock of these conglomerates is held by mutual funds that are broker's clients. Moreover, in times of distress when investors tend to decrease exposure to financial companies, client funds increase ownership in their brokers' parent companies. Consistent with the theory on liquidity provision, we find that these trades are not driven by superior information, and they contribute to the financial stability of brokers' parent companies. This suggests that business networks between financial institutions and their clients have broader implications for the systemic risk of the financial sector. We also show that funds' investments in their brokers' stocks are positively associated with funds' performance on non-connected stocks. The documented effects are strongest for funds that have long-lasting business ties with their brokers. Our findings suggest that asset managers act as buyers of last resort for brokers that provide more valuable investment services. Exogenous changes in business ties due to brokerage firm acquisitions by large financial groups confirm the causal nature of this relation