Endogenous liquidity in emerging markets

Recent work has documented the “endogenous liquidity” phenomenon - that is, evidence that the amount of liquidity provision is determined endogenously by the expected profitability of market making. This effect has been verified in existing literature using G7 financial market data. The present paper examines whether endogenous liquidity is also present in the equity markets of emerging countries. Results show that indeed there is strong evidence across a broad range of countries for the hypothesis, with the effect potentially being even stronger in emerging market countries than in the G7 sample.