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Do designated market makers provide liquidity during downward extreme price movements?

Mario Bellia et al.

Journal of Financial Markets2025https://doi.org/10.1016/j.finmar.2025.100988article
AJG 3ABDC A*
Weight
0.41

What the paper says

We study the trading activity of designated market makers (DMMs) in electronic markets using a unique dataset with audit-trail information on trader classification. DMMs may either adhere to their market-making agreements and offer immediacy during periods of heavy selling pressure, or they might lean-with-the-wind to profit from private information. We test these competing theories during extreme (downward) price movements, which we detect using a novel methodology. We show that DMMs provide liquidity when the selling pressure is concentrated on a single stock, but consume liquidity (leaving liquidity provision to slower traders) when several stocks are affected. • We study designated market makers liquidity provision in Nyse-Euronext. • We show that they provide liquidity in case of extreme selling pressure concentrated on single stocks. • They instead consume liquidity when selling pressure is systematic. • We use a new identification method for extreme price movements, which crucially allows to assess the above results.

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https://doi.org/https://doi.org/10.1016/j.finmar.2025.100988

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@article{mario2025,
  title        = {{Do designated market makers provide liquidity during downward extreme price movements?}},
  author       = {Mario Bellia et al.},
  journal      = {Journal of Financial Markets},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1016/j.finmar.2025.100988},
}

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Evidence weight

0.41

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.25 × 0.4 = 0.10
M · momentum0.55 × 0.15 = 0.08
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.