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Institutional Trading and Soft Dollars

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  • Jennifer S. Conrad

Abstract

Proprietary data allow us to distinguish between institutional investors' orders directed to soft-dollar brokers and those directed to other types of brokers. We find that soft-dollar brokers execute smaller orders in larger market value stocks. Allowing for differences in order characteristics, we estimate the incremental implicit cost of soft-dollar execution at 29 (24) basis points for buyer- (seller-) initiated orders. For large orders, incremental implicit costs are 41 (30) basis points for buys (sells). However, we document substantial variability in these estimates, and research services provided by soft-dollar brokers may at least partially offset these costs. Copyright The American Finance Association 2001.

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  • Jennifer S. Conrad, 2001. "Institutional Trading and Soft Dollars," Journal of Finance, American Finance Association, vol. 56(1), pages 397-416, February.
  • Handle: RePEc:bla:jfinan:v:56:y:2001:i:1:p:397-416
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