Do designated market makers provide liquidity during downward extreme price movements?
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arXiv
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| Auteurs principaux: | , , , , |
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| Format: | Preprint |
| Publié: |
2026
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| _version_ | 1866912868283187200 |
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| author | Bellia, Mario Christensen, Kim Kolokolov, Aleksey Pelizzon, Loriana Renò, Roberto |
| author_facet | Bellia, Mario Christensen, Kim Kolokolov, Aleksey Pelizzon, Loriana Renò, Roberto |
| contents | 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. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2602_01817 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Do designated market makers provide liquidity during downward extreme price movements? Bellia, Mario Christensen, Kim Kolokolov, Aleksey Pelizzon, Loriana Renò, Roberto Econometrics 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. |
| title | Do designated market makers provide liquidity during downward extreme price movements? |
| topic | Econometrics |
| url | https://arxiv.org/abs/2602.01817 |