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

Author

Listed:
  • Mario Bellia
  • Kim Christensen
  • Aleksey Kolokolov
  • Loriana Pelizzon
  • Roberto Ren`o

Abstract

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.

Suggested Citation

  • Mario Bellia & Kim Christensen & Aleksey Kolokolov & Loriana Pelizzon & Roberto Ren`o, 2026. "Do designated market makers provide liquidity during downward extreme price movements?," Papers 2602.01817, arXiv.org.
    • Handle: RePEc:arx:papers:2602.01817
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    File URL: http://arxiv.org/pdf/2602.01817
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    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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