Inside Brokers

We identify the stock broking house that firm's insiders trade through, and show that analysts employed at such “inside brokers” have a distinct information advantage over other analysts, even after the trade is publicly disclosed. This advantage of the “inside analyst” is stronger for firms that are smaller, more opaque, and with greater disagreement about their future. Unlike many other sources of analyst comparative advantage, the effect we show is stronger after Regulation Fair Disclosure. We show that one source of advantage of the broker is the knowledge of the nature of the trading instruction, which facilitates inference about the trade’s information content. Our results have important implications for regulations needed to deal with information asymmetry that arises from the process of trading by insiders.