Market conditions, fragility, and the economics of market making

Amber Anand, Kumar Venkataraman

Research output: Contribution to journalArticlepeer-review

49 Scopus citations


Using audit-trail data from the Toronto Stock Exchange, we find that market makers scale back in unison when market conditions are unfavorable, which contributes to covariation in liquidity supply, both within and across stocks. Market conditions lower aggregate participation via their impact on trading profits and risk. Contrary to regulatory view, higher stock volatility is associated with more participation and higher profits, even after controlling for other market conditions, including stock volume. Fragility concerns extend to larger stocks and to active participants. The designated market maker mitigates periodic illiquidity created by synchronous withdrawal of market makers in large and small stocks.

Original languageEnglish (US)
Pages (from-to)327-349
Number of pages23
JournalJournal of Financial Economics
Issue number2
StatePublished - Aug 1 2016


  • Fragility
  • HFTs
  • Market makers
  • Obligations
  • Volatility

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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