The effect of the introduction of market makers on stock liquidity: evidence from the Brazilian stock market

Authors

DOI:

https://doi.org/10.21680/2176-9036.2021v13n2ID25722

Keywords:

Market Makers, Market Liquidity, Capital Markets.

Abstract

Purpose: This study aimed to analyze whether the introduction of market makers as specialized intermediaries in the trading of stocks listed on the Brazilian stock exchange is a useful procedure for increasing the market liquidity of these assets.

Methodology: The Chow structural break test was performed in the time series of the liquidity proxies, average spread, turnover ratio, and financial volume on a sample of 55 stocks. We chose to consider data in the window of 260 days before and after the start of the market maker's activity, because it represents the approximate number of trading sessions in a year, and to avoid erroneous conclusions due to the volatility of the Brazilian stock market.

Results: The results showed with a 99% confidence level that after the introduction of market makers, (i) 67% of the stocks analyzed had abrupt and statistically significant changes in the average spread; (ii) 47% in the turnover ratio; and (iii) 60% had changes in the volume transactions. At the confidence level of 95%, (i) 76% of the stocks analyzed showed abrupt changes in the average spread; (ii) 65% had changes in turnover; (iii) and 69% had changes in the trading volume. Using a lower confidence level of 90%, the results revealed 85% of the stocks had abrupt and statistically significant changes in the average spread, 78% in the turnover ratio, and 73% in the trading volume.

Contributions of the Study: This paper provides strong evidence on the performance of market makers and the influence they have on the market liquidity of stocks traded on the Brazilian stock exchange. We found that contracting market makers increase market liquidity and contribute significantly to the assets’ transactions.

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Author Biographies

Gabriel Augusto de Carvalho, Federal Center for Technological Education of Minas Gerais (CEFET-MG).

Master in Administration from the Postgraduate Program in Administration (PPGA).

João Eduardo Ribeiro, Federal University of Minas Gerais (UFMG).

Master in Administration from the Postgraduate Program in Administration (PPGA) of the Federal Center for Technological Education of Minas Gerais (CEFET-MG). Doctoral Student in Administration.

Laíse Ferraz Correia, Federal Center for Technological Education of Minas Gerais (CEFET-MG).

PhD in Administration from the Federal University of Minas Gerais (UFMG).

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Published

02-07-2021

How to Cite

CARVALHO, G. A. de; RIBEIRO, J. E. .; CORREIA, L. F. . The effect of the introduction of market makers on stock liquidity: evidence from the Brazilian stock market. REVISTA AMBIENTE CONTÁBIL - Universidade Federal do Rio Grande do Norte, [S. l.], v. 13, n. 2, 2021. DOI: 10.21680/2176-9036.2021v13n2ID25722. Disponível em: https://periodicos.ufrn.br/ambiente/article/view/25722. Acesso em: 3 jul. 2024.

Issue

Vol. 13 No. 2 (2021): Jul./Dez.

Section

Section 7: International (S7)

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