Are Some Clients More Equal Than Others? An Analysis of Asset Management Companies' Execution Costs. (14th September 2017)

• Record Type: Journal Article
• Authors: Ben-Rephael, Azi; Israelsen, Ryan D
• Is Part Of: Review of finance. Volume 22:Number 5(2018)
• Page Start: 1705
• Page End: 1736
• Publication Date: 2017-09-14
• Subjects: Conflicts of interest -- Strategic performance allocation -- Price allocation -- Delegated portfolio management -- Trading desks -- Execution costs; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfx043
• Languages: English
• ISSNs: 1572-3097

Abstract

Abstract: Previous research documents differences in trading desk skills across management companies that result in significant variation in execution costs. In this paper, we utilize links between management companies and their institutional clients to explore variation in execution costs within management companies. For a subset of management companies, we find that systematic differences in execution costs exist across clients; these differences are comparable to the variation documented across management companies and persist over time. Clients who receive lower execution costs reward management companies with an increase in dollar trading volume. We find no evidence that the results are driven by broker commissions or differences in trading practices. Given the economic significance of our findings and implications for institutional investors, this aspect of execution should be recognized regardless of the ultimate source of the differences.