Who makes markets |
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| Institution: | 1. Technical University Munich, 85748 Garching, Germany;2. School of Economics and Management, Leibniz University Hannover, Königsworther Platz 1, 30167 Hannover, Germany;3. University of Liverpool Management School, Chatham Street, Liverpool, L69 7ZH, UK;1. Accounting and Finance Group, International Business School Suzhou, Xi''an Jiaotong — Liverpool University, Suzhou, 215123, China;2. Department of Finance, Financial Planning, and Insurance, David Nazarian College of Business and Economics, California State University, Northridge, CA 91330-8379, USA |
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| Abstract: | A dealer needs access to order flow and information to make a market profitably in a Nasdaq stock. Several variables that proxy for the stocks that an individual market maker's brokerage customers trade, including volume, location, underwriting participation and analyst coverage, are significant determinants of market making activity. Informational advantages may also factor in the market making decision as evidenced by dealers specializing in industries. These findings suggest that individual dealers have competitive advantages in making markets in specific stocks, and that potential market making competition comes from the dealers who share those advantages rather than all Nasdaq market makers. |
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