Loriana Pelizzon, member of the Management Board and Department Director of Financial Markets at the Leibniz Institute for Financial Research SAFE, and her co-authors have won the Best Paper Award using high-frequency data from the European Financial Data Institute (EUROFIDAI). The award is for the paper “Market Liquidity and Competition among Designated Market Makers,” forthcoming in Management Science.
In their study, SAFE Professor Pelizzon, Mario Bellia of the European Commission’s Joint Research Center, Marti Subrahmanyam of New York University’s Stern School of Business and SAFE Fellow, and Darya Yuferova of the Norwegian School of Economics examine how competition among certain electronic traders, known as Designated Market Makers (DMMs), affects the functioning of financial markets, particularly stock exchanges. Traditionally, DMMs have played a crucial role in ensuring the smooth operation of markets. Recently, however, high-frequency traders have increasingly taken over this role.
The study focuses on the French benchmark index CAC 40 and uses an actual event from 2013 as a basis for analysis. The results show that changes in the rules for DMMs, particularly more competition, led to a significant improvement in market conditions. The study suggests that in addition to the usual methods of providing incentives and setting rules, promoting healthy competition among these electronic traders can be a critical factor in improving the functioning of financial markets.
EUROFIDAI is an institute of the CNRS and ESSEC Business School in France. The EUROFIDAI platform offers separate databases with detailed financial market and ESG information, including the high-frequency database BEDOFIH. Management Science is considered one of the most prestigious academic journals in its field and regularly publishes research articles on aspects of management related to strategy, business organization, innovation, information technologies, accounting, finance, and marketing.