Is Proprietary Trading Detrimental to Retail Investors?
The Journal of Finance , Volume 73 - Issue 3 p. 1323- 1361
We study the conflict of interest that arises when a universal bank conducts proprietary trading alongside its retail banking services. Our data set contains the stock holdings of every German bank and those of their corresponding retail clients. We investigate (i) whether banks sell stocks from their proprietary portfolios to their retail customers, (ii) whether those stocks subsequently underperform, and (iii) whether retail customers of banks engaging in proprietary trading earn lower portfolio returns than their peers. We present affirmative evidence for all three questions and conclude that proprietary trading can, in fact, be detrimental to retail investors.
|The Journal of Finance|
|Organisation||Rotterdam School of Management (RSM), Erasmus University|
Fecht, F, Hackethal, A. (Andreas), & Karabulut, Y. (2018). Is Proprietary Trading Detrimental to Retail Investors?. The Journal of Finance, 73(3), 1323–1361. doi:10.1111/jofi.12609