Abstract
A current debate in finance concerns the transparency in financial markets and the disclosure of counterparty identity information. We use a simple meanvariance framework and data from Helsinki Stock Exchange to explore the asset allocation implications of market transparency. We find that broker identity conveys information that is economically significant. A mean-variance investor can benefit remarkably, up to 36% (annualized) percentage points for the most parsimonious forecasting model, from observing the order flow of a post-trade non-anonymous market. This result suggests that market transparency yields positive economic value. A second result is the substantial variation in the information content of order flow at the broker level. We show that the predictive power of broker customer order flow can be attributed to observable brokerspecific characteristics: market share, daily volume, investment style and degree of sophistication.
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