FSS-DECO Seminar: Designated Market Makers Are Even Better Than You Think
Speaker: Prof. Jongsang PARK, Associate Professor, Department of Economics, Sookmyung Women’s University, Korea
Date: 29 April 2026 (Wednesday)
Time: 14:00-15:15
Venue: E21B-G002
Language: English
Abstract: We propose a novel amplification channel through which designated market makers (DMMs) improve market quality. Using a model of the stock market, we demonstrate that the adoption of DMMs increases demand from hedgers, making them more effective by reducing their exposure to informed traders and adverse selection. We test our model predictions using a regression discontinuity design that exploits exogenous variation in DMM assignment. We find that DMMs improve liquidity, increase volatility, and that these effects are stronger in securities with higher levels of ex-ante volatility, as predicted. We also provide additional evidence directly supporting the existence of this channel.
