Do designated market makers provide liquidity during downward extreme price movements?
Econometrics
2026-02-03 v1
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.
Keywords
Cite
@article{arxiv.2602.01817,
title = {Do designated market makers provide liquidity during downward extreme price movements?},
author = {Mario Bellia and Kim Christensen and Aleksey Kolokolov and Loriana Pelizzon and Roberto Renò},
journal= {arXiv preprint arXiv:2602.01817},
year = {2026}
}