Affirmative obligations and market making with inventory

• 成果类型: Article
• 署名作者: Panayides, Marios A.
• 署名单位: Utah System of Higher Education; University of Utah
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2006.11.002
• 发表日期: 2007
• 页码: 513-542
• 关键词: specialist inventory; affirmative obligations; price continuity

摘要

Existing empirical studies provide little support for the theoretical prediction that market makers rebalance their inventory through revisions of quoted prices. This study provides evidence that the NYSE's specialist does engage in significant inventory rebalancing, but only when not constrained by the affirmative obligation to provide liquidity imposed by the Price Continuity rule. The evidence also suggests that such obligations are associated with better market quality, but impose significant costs on the specialist. The specialist mitigates these costs through discretionary trading when the rule is not binding. These findings shed light on how exchange rules affect market makers' behavior and market quality. (c) 2007 Elsevier B.V. All rights reserved.