Do proprietary traders provide liquidity?

Whether proprietary traders provide or take liquidity, and how their behavior evolves over the business cycle and across stocks, remains at the center of an ongoing debate. Using a unique dataset from the NYSE, we document that proprietary traders act as net liquidity providers, buying after price declines in a contrarian pattern. Proprietary trader liquidity provision is concentrated in large, liquid, low-volatility stocks and diminishes significantly when intermediary balance sheets are weak. Liquidity provision is stronger when price movements are plausibly not driven by information. Our findings highlight both the role and the limits of proprietary traders in supporting market liquidity across time and market segments.