Investor Loyalty in the Stock Brokering Business

We investigate whether customer (investor) loyalty and relational exchanges exist between investors, brokers and brokerage houses by analyzing the changes in investors' trading behavior when their broker changes her brokerage house. We accomplish this by analyzing a unique database containing all transactions and investor trading histories in the Helsinki Stock Exchange. We find that after a broker switches, investor trading decreases at the old brokerage house and increases at the new house. In addition, pre-existing relationships with the new brokerage house make it more likely that investors will follow their broker. Moreover, new brokerage houses that are less active in a particular stock are more likely to attract the investors from the old houses. Finally, evidence supports savvy investors having more complicated trading preferences than unsavvy investors and the latter having greater biases toward dealing with the switching broker