Preventing Information Leakage

Traders devote significant resources to producing private information. The value of such information is eroded when it is leaked. We study the use of multiple brokers by institutions to help mitigate information leakage. We document that trades using multiple brokers better predict future returns and have higher future profits, consistent with information possessed by investors driving the decision to use multiple brokers. We find that trades using multiple brokers are more informed and, yet, have lower price impacts, lower implementation shortfalls, and fewer follower trades than similar single-broker trades. The results suggest that traders use multiple brokers to successfully reduce information leakage.

This paper was accepted by Camelia Kuhnen, finance.

Supplemental Material: The internet appendix and data files are available at https://doi.org/10.1287/mnsc.2025.00201.