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

Tinic, Murat and Sensoy, Ahmet and Demir, Muge and Nguyen, Duc Khuong (2020): Broker Network Connectivity and the Cross-Section of Expected Stock Returns.

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 coefficient 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 1.0% - 1.6% monthly return premiums. The connectivity premium is stronger in terms of both economic and statistical significance for small size stocks.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stock market; trading networks; broker networks, network connectivity, pricing factors.
• Subjects: G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates

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