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Call of Duty: Designated Market Maker Participation in Call Auctions

forthcoming in Journal of Financial Markets

Authors:
Erik Theissen,
Christian Westheide
Research Area:
Financial Markets
Date:
Jan 2020
Abstract:

Many equity markets combine continuous trading and call auctions. Oftentimes designated market makers (DMMs) supply additional liquidity. Whereas prior research has focused on their role in continuous trading, we provide a detailed analysis of their activity in call auctions. Using data from Germany's Xetra system, we find that DMMs are most active when they can provide the greatest benefits to the market, i.e., in relatively illiquid stocks and at times of elevated volatility. Their trades stabilize prices and they trade profitably.

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