The Effects of Market Makers and Stock Analysts in Emerging Markets
International Review of Finance, Forthcoming
29 Pages Posted: 24 Aug 2011
Date Written: August 20, 2011
We exploit a quasi-experiment to examine the effects of market makers and stock analysts in three emerging stock markets. We find substantial differences in the effects across markets and, in contrast to existing literature, the effects of market makers are not always positive. Our results suggest that the structure of market makers’ agreements and compensation matters for their effects on market quality. Stock analysts, on balance, have marginally positive effects on liquidity and informational efficiency. The benefits of market makers are weaker in the presence of stock analysts, and vice versa, suggesting that market makers and stock analysts are more like substitutes than complements in their effects on market quality.
Keywords: liquidity, informational efficiency, market makers, stock analysts
JEL Classification: G14, G19
Suggested Citation: Suggested Citation