Strategic Liquidity Provision and Extreme Volatility Spikes

• 成果类型: Article; Early Access
• 署名作者: Brogaard, Jonathan; Sokolov, Konstantin; Zhang, Jiang
• 署名单位: Utah System of Higher Education; University of Utah; University of Memphis; University of St Thomas Minnesota
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.04104
• 发表日期: 2025
• 关键词: price pressures; strategic liquidity provision; extreme volatility spikes

摘要

We test competing theories of liquidity dynamics during extreme volatility spikes (EVSs). We find that liquidity providers strategically allow for price pressures and are compensated from correcting pricing errors. As a result, liquidity provision intensifies toward the end of a typical EVS. This goes counter to a widespread concern that marketmaking constraints cause liquidity to deteriorate as EVSs develop. The prevailing limit order book dynamics during EVSs are in line with the socially beneficial equilibrium presented in the theoretical literature.