Does it Matter Who Trades? Broker Identities and the Information Content of Stock Trades

This paper shows that the market reaction to a trade depends on the identity of the broker initiating the trade, controlling for the known determinants of the permanent price impact. I combine microstructure data with investor trading records to reconstruct brokers' customer bases and to examine broker heterogeneity. I find that informed traders are more likely to trade through certain types of brokers and that the market uses all trade characteristics jointly to make inferences about the probability that a trade originates from an informed trader. The permanent price impact of a trade is decreasing in the household-intensity of a broker, indicating that the market perceives households to be trading less frequently on private information. Trade characteristics also matter when they deviate from the historical norm: an unusual trade from a retail broker generates a higher price impact than what it would generate if the trade originated from an institutional broker.