Analysts' Information Based Trading and Market Making: An Analysis on NASDAQ Market Makers

2009 ◽  
Author(s):  
Arze Karam
Keyword(s):  
Market Making ◽  
Market Makers

scholarly journals Welfare Effects of Market Making in Continuous Double Auctions

2017 ◽  
Vol 59 ◽  
pp. 613-650 ◽  
Author(s):  
Elaine Wah ◽  
Mason Wright ◽  
Michael P. Wellman
Keyword(s):  
Allocative Efficiency ◽  
Market Model ◽  
Model Parameters ◽  
Market Maker ◽  
Market Making ◽  
Market Makers ◽  
Continuous Double Auctions ◽  
Thin Markets ◽  
Heuristic Strategies ◽  
Fundamental Value

We investigate the effects of market making on market performance, focusing on allocative efficiency as well as gains from trade accrued by background traders. We employ empirical simulation-based methods to evaluate heuristic strategies for market makers as well as background investors in a variety of complex trading environments. Our market model incorporates private and common valuation elements, with dynamic fundamental value and asymmetric information. In this context, we compare the surplus achieved by background traders in strategic equilibrium, with and without a market maker. Our findings indicate that the presence of the market maker strongly tends to increase total welfare across various environments. Market-maker profit may or may not exceed the welfare gain, thus the effect on background-investor surplus is ambiguous. We find that market making tends to benefit investors in relatively thin markets, and situations where background traders are impatient, due to limited trading opportunities. The presence of additional market makers increases these benefits, as competition drives the market makers to provide liquidity at lower price spreads. A thorough sensitivity analysis indicates that these results are robust to reasonable changes in model parameters.

scholarly journals Order Imbalances and Market Efficiency: Evidence from the Taiwan Stock Exchange

2004 ◽  
Vol 39 (2) ◽  
pp. 327-341 ◽  
Author(s):  
Yi-Tsung Lee ◽  
Yu-Jane Liu ◽  
Richard Roll ◽  
Avanidhar Subrahmanyam
Keyword(s):  
Market Efficiency ◽  
Stock Exchange ◽  
Large Individual ◽  
Domestic Institutions ◽  
Market Making ◽  
Taiwan Stock Exchange ◽  
Market Makers ◽  
Order Imbalance ◽  
Individual Traders ◽  
Over Time

AbstractData from the Taiwan Stock Exchange identify the originator of each submitted order, and there are no designated dealers or specialists. We study marketable order imbalances, i.e., the net order flow resulting from trades that demand immediacy. We distinguish imbalances by trader type (individuals, domestic institutions, foreign institutions) and by the usual size of each trader's order. Day-to-day persistence in order imbalance is strongest for small foreign institutions and weakest for large individual traders. Such persistence emanates both from splitting orders over time and from herding, and there is little evidence that aggregate price pressures from such persistence last beyond a trading day, indicating that de facto market making is quite effective. We attempt to discern which types of traders are de facto liquidity providers, which are likely to be informed, and which trade for liquidity reasons. The evidence indicates that all trader classes are successful market makers, large domestic institutions conduct the most informed trades, and large individuals are noise or liquidity traders.

scholarly journals Os efeitos da introdução de agentes de liquidez no mercado acionário brasileiro

2013 ◽  
Vol 11 (2) ◽  
pp. 281
Author(s):  
Marcelo Perlin
Keyword(s):  
Event Study ◽  
High Frequency ◽  
Financial Institution ◽  
Stock Exchange ◽  
Market Maker ◽  
Average Increase ◽  
Market Making ◽  
Market Makers ◽  
Liquidity Provision ◽  
Before And After

The main objective of this study is to analyze the empirical effects of the introduction of market makers in the Brazilian stock exchange. By aggregating information regarding the dates of the market maker’s contract and the use of a privileged high frequency database, it was possible to execute an event study to check the effect of the introduction of liquidity agents. As expected, the period after the beginning of the market maker’s contract presented a significant increase in the liquidity of the stocks. The study reports an average increase of 31% in the number of trades in the period before and after the start of the contract. Another result is that the work of a liquidity agent can change significantly the autocorrelation of the trade signs in approximately 10%. Such a result is stronger for the stocks with lower liquidity. The investigation also shows heterogeneous results for the performance of the liquidity provision when the analysis based itself on the financial institution of the market maker. Such information is particularly important for companies that are seeking to contract market making services.

scholarly journals Dynamic Equilibrium of Market Making with Price Competition

2020 ◽  
Author(s):  
Jialiang Luo ◽  
Harry Zheng
Keyword(s):  
Price Competition ◽  
Dynamic Equilibrium ◽  
A Priori ◽  
Coupled System ◽  
Jump Process ◽  
Market Liquidity ◽  
Market Making ◽  
Market Makers ◽  
Bid Ask Spreads ◽  
Uniqueness Of Nash Equilibrium

AbstractIn this paper, we discuss the dynamic equilibrium of market making with price competition and incomplete information. The arrival of market sell/buy orders follows a pure jump process with intensity depending on bid/ask spreads among market makers and having a looping countermonotonic structure. We solve the problem with the nonzero-sum stochastic differential game approach and characterize the equilibrium value function with a coupled system of Hamilton–Jacobi nonlinear ordinary differential equations. We prove, do not assume a priori, that the generalized Issac’s condition is satisfied, which ensures the existence and uniqueness of Nash equilibrium. We also perform some numerical tests that show our model produces tighter bid/ask spreads than those derived using a benchmark model without price competition, which indicates the market liquidity would be enhanced in the presence of price competition of market makers.

Large Option Trades, Market Makers, and Limit Orders

CFA Digest ◽  
1997 ◽  
Vol 27 (2) ◽  
pp. 47-48
Author(s):  
Terence M. Lim
Keyword(s):  
Market Makers ◽  
Limit Orders
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