The effects of the introduction of market makers in the Brazilian equity market
Main Article Content
Abstract
The main objective of this study is to analyze the empirical effects of the introduction of market makers in the Brazilian stock exchange. By aggregating information regarding the dates of the market maker’s contract and the use of a privileged high frequency database, it was possible to execute an event study to check the effect of the introduction of liquidity agents. As expected, the period after the beginning of the market maker’s contract presented a significant increase in the liquidity of the stocks. The study reports an average increase of 31% in the number of trades in the period before and after the start of the contract. Another result is that the work of a liquidity agent can change significantly the autocorrelation of the trade signs in approximately 10%. Such a result is stronger for the stocks with lower liquidity. The investigation also shows heterogeneous results for the performance of the liquidity provision when the analysis based itself on the financial institution of the market maker. Such information is particularly important for companies that are seeking to contract market making services.
Article Details
Section
Long Paper
Authors that publish in the Brazilian Review of Finance agree with the following terms:
Authors maintain their moral rights and grant to Review the copyright and the first publication right with their work simultaneously licensed under a Creative Commons Attribution 3.0 License that allows the total or partial copy of the work, including for commercial use, and sharing of the work with recognition of its authors and the initial publication in this journal.
Authors are allowed to take additional contracts separately for non-exclusive distribution of the paper published in this journal (eg, in institutional repositories or to publish as a book chapter), with recognition of its authors and the initial publication in this journal.
Authors are permitted and encouraged to post their work online (eg, in institutional repositories or on their website) at any point before or during the submission process, as this can lead to productive exchanges, as well as increase the impact and citation of the published work.
The contents of the signed articles are the sole responsibility of the authors, remains their responsibility even after the transfer of the copyright. The Review reserves the right to make normative, spelling and grammar changes in the original article in order to maintain the linguistic standards, but will follow the style of the authors. RBFin also reserves the right to translate the article into another language. RBFin may impose a copyright transfer form as a condition for publishing the article.
