Author : Hung-Kun Chen
Release : 2016
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The Impacts of Tick Size Reduction in a Market with Multiple Tick Sizes - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook The Impacts of Tick Size Reduction in a Market with Multiple Tick Sizes write by Hung-Kun Chen. This book was released on 2016. The Impacts of Tick Size Reduction in a Market with Multiple Tick Sizes available in PDF, EPUB and Kindle. We analyze the impact of tick size reduction on market quality, placing particular focus on whether a multiple tick rule helps to mitigate the impact of a tick rule size reduction in purely order-driven markets. Using a novel dataset covering an entire limit order book, our results suggest that the tick size reduction resulted in substantial declines in effective spread, quote depth, and market depth throughout the limit order book, whereas no significant effects on either trading volume or volatility are discernible. The multiple tick schedule does not eliminate divergence in the market quality for stocks in the same tick size group or across tick size groups. Within the same tick size group, spread and depth are reduced more for those stocks with lower prices, larger capitalization levels, and higher trading frequency. Across tick size groups, the impact of the tick size reduction is found to be stronger for groups where the original tick size was more of a binding constraint and for those groups which experienced a larger (relative) tick size reduction. Overall, our results suggest that a smaller tick size has reduced transaction costs for small trades yet impaired the provision of liquidity, particularly for large trades in high capitalization and more frequently-traded stocks. As a result, the net benefit of the new tick size schedule cannot be confirmed with certainty.