Call of Duty: Designated Market Maker Participation in Call Auctions
44 Pages Posted: 21 Aug 2021
Date Written: August 2021
Many equity markets combine continuous trading and call auctions. Oftentimes designated market makers (DMMs) supply additional liquidity. Whereas prior research has focused on their role in continuous trading, we provide a detailed analysis of their activity in call auctions. Using data from Germany’s Xetra system, we find that DMMs are most active when they can provide the greatest benefits to the market, i.e., in relatively illiquid stocks and at times of elevated volatility. Their trades stabilize prices and they trade profitably.
Keywords: Designated market makers, Call auctions
JEL Classification: G10
Suggested Citation: Suggested Citation