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Which firms benefit from market making?

Author

Listed:
  • Y. Peter Chung

    (University of California)

  • S. Thomas Kim

    (University of Tulsa)

  • Kenji Kutsuna

    (Kobe University)

  • Richard L. Smith

    (University of California)

Abstract

From 1998 until 2008, all firms on the JASDAQ exchange could choose and switch between a market-maker method similar to NASDAQ and a continuous auction method similar to NYSE for trading their shares. We find that selecting a more suitable trading method increases firm value. When low-liquidity firms switched to market making, their liquidity improved, while high-liquidity firms switched to auction despite modest but significant decreases in liquidity. The results suggest that though market making is costly, it is valuable for firms as long as the liquidity benefits are sufficient to justify the implicit intermediation fee.

Suggested Citation

  • Y. Peter Chung & S. Thomas Kim & Kenji Kutsuna & Richard L. Smith, 2020. "Which firms benefit from market making?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(1), pages 33-63, March.
    • Handle: RePEc:kap:fmktpm:v:34:y:2020:i:1:d:10.1007_s11408-020-00345-5
    DOI: 10.1007/s11408-020-00345-5
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    More about this item

    Keywords

    Market making; Continuous auction; Liquidity; JASDAQ;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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