Do Designated Market Makers Facilitate Earnings News Discovery?

As markets replace contractual liquidity providers (designated market makers; DMMs) with voluntary liquidity provision through cutting-edge technology, we investigate how this affects price discovery. Research suggests that endogenous liquidity provision is not always optimal. We investigate how DMMs affect the incorporation of earnings news into prices. Using a regression discontinuity design, we show that increased DMM participation facilitates earnings news discovery—lower JUMP, lower Synchronicity, and higher Future Earnings Response Coefficient. Greater DMM participation associates with improved liquidity, and induces greater informed trading as evidenced by more short selling on negative news and increased EDGAR and Bloomberg search activity before earnings announcements. Our results highlight an important and hitherto overlooked effect of modern technology on processing earnings information.

JEL Classification: G02, G10, G14, M40, M41

Suggested Citation: Suggested Citation

Bhattacharya, Neil and Chakrabarty, Bidisha and Ma, Matthew and Pan, Jing,

(November 12, 2025). SMU Cox School of Business Research Paper No. 22-10, Journal of Accounting and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4060375 or http://dx.doi.org/10.2139/ssrn.4060375