Abstract

http://ssrn.com/abstract=2179259
 
 

References (43)



 
 

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Market Conditions, Fragility and the Economics of Market Making


Amber Anand


Syracuse University - Whitman School of Management

Kumar Venkataraman


Southern Methodist University (SMU) - Edwin L. Cox School of Business

July 20, 2015


Abstract:     
Using audit-trail data from Toronto Stock Exchange, we find empirical support for regulatory concerns that market makers scale back in unison when market conditions are unfavorable, which contributes to co-variation in liquidity supply, both within a stock and across stocks. Market conditions lower aggregate participation via their impact on trading profits and risk. Contrary to regulatory view, higher stock volatility is associated with more participation and higher profits, even after controlling for other market conditions, including stock volume. Fragility concerns extend to the larger stocks in the market and the active participants in a stock. The Designated Market Maker (DMM) mitigates periodic illiquidity created by synchronous withdrawal by market makers in both large and small stocks.

Number of Pages in PDF File: 52

Keywords: Market Makers; HFTs; Fragility; Volatility; Obligations

JEL Classification: G20


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Date posted: November 21, 2012 ; Last revised: July 28, 2015

Suggested Citation

Anand, Amber and Venkataraman, Kumar, Market Conditions, Fragility and the Economics of Market Making (July 20, 2015). Available at SSRN: http://ssrn.com/abstract=2179259 or http://dx.doi.org/10.2139/ssrn.2179259

Contact Information

Amber Anand (Contact Author)
Syracuse University - Whitman School of Management ( email )
721 University Avenue
Syracuse, NY 13244
United States
Kumar Venkataraman
Southern Methodist University (SMU) - Edwin L. Cox School of Business ( email )
P.O. Box 750333
Dallas, TX 75275-0333
United States
214-768-7005 (Phone)
214-768-4099 (Fax)
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