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One for the money, two for the show? The number of designated market makers and liquidity

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  • Theissen, Erik
  • Westheide, Christian

Abstract

Prior research has established that the presence of designated market makers (DMMs) in an electronic open limit order book increases liquidity. We analyze whether the presence of additional DMMs results in a further improvement in liquidity. Using data from Deutsche Börse’s Xetra system we find that increases in the number of DMMs significantly improve liquidity, and vice versa for decreases in the number of DMMs. Our results are confirmed when we use an instrumental variables approach to overcome potential endogeneity issues.

Suggested Citation

  • Theissen, Erik & Westheide, Christian, 2023. "One for the money, two for the show? The number of designated market makers and liquidity," Economics Letters, Elsevier, vol. 224(C).
    • Handle: RePEc:eee:ecolet:v:224:y:2023:i:c:s0165176523000174
    DOI: 10.1016/j.econlet.2023.110992
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    References listed on IDEAS

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    More about this item

    Keywords

    Designated market makers; Liquidity;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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