Is proprietary trading detrimental to retail investors?

Arbeitspapier

We study a conflict of interest faced by universal banks that conduct proprietary trading alongside their retail banking services. Our dataset contains the stock holdings of each and every German bank and of their corresponding retail clients. We investigate (i) whether banks deliberately push stocks from their proprietary portfolios into their retail customer portfolios, (ii) whether those stocks subsequently underperform, and (iii) whether retail customers of banks with proprietary trading earn lower long-term portfolio returns than their peers. We present affirmative evidence on all three questions and conclude that proprietary trading can, in fact, be very detrimental to retail investors.

Object Details

• ISBN: 978-3-86558-970-5
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bundesbank Discussion Paper ; No. 42/2013

Classification and Topics

• Classification: Wirtschaft ; Corporate Finance and Governance: General ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: conflict of interests ; universal banks ; proprietary trading ; retail investment ; retail banking

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fecht, Falko ; Hackethal, Andreas ; Karabulut, Yigitcan
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/87721
• Last update: 10.03.2025, 11:41 AM CET