Liquidity Provision Contracts and Market Quality: Evidence from the New York Stock Exchange

• 成果类型: Article
• 署名作者: Bessembinder, Hendrik; Hao, Jia; Zheng, Kuncheng
• 署名单位: Arizona State University; Arizona State University-Tempe; Babson College; Chinese University of Hong Kong; Northeastern University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhz040
• 发表日期: 2020
• 页码: 44
• 关键词: regression discontinuity designs; bandwidth; investors; security

摘要

We exploit a discontinuity in the New York Stock Exchange Designated Market Maker (DMM) contract to identify causal effects of DMM participation on equilibrium market outcomes. We document that contractual features that enhance DMM participation are associated with increased depth, narrower bid-ask spreads, and higher rates of price improvement, with most of the improvements attributable to increases in liquidity provision on markets other than the NYSE. These results cannot be attributed to the mechanical effects of the contractual changes and support the interpretation that market making is characterized by strategic complementarity.