Conference Agenda
Overview and details of the sessions of this conference. Please select a date or location to show only sessions at that day or location. Please select a single session for detailed view (with abstracts and downloads if available).
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Track TH3-1: Market Microstructure
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Scale Economies in Liquidity Provision: Evidence from Designated Market Makers 1Universidad de los Andes, Chile; 2Universidad de los Andes, Chile; 3Universidad Andres Bello, Chile Stock markets in emerging economies often suffer from severe illiquidity. Exploiting a Chilean tax regulation, we identify a large negative causal effect of designated market maker (DMM) adoption on bid–ask spreads. A novel intraday spread distribution analysis shows the improvement is roughly split between the DMM’s binding spread obligation and liquidity externalities. These externalities arise from scale economies in liquidity provision: in thin markets, high average costs of liquidity supply force wide spreads, suppressing demand and risking market breakdown. By committing to tighter spreads, a DMM reverses this spiral by stimulating volume, diluting fixed costs, easing inventory management, and enabling further spread compression.
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