15 Pages Posted: 27 Jul 2015 Last revised: 28 Jul 2015
Date Written: July 27, 2015
The tick value is a crucial component of market design and is often considered the most suitable tool to mitigate the effects of high frequency trading. The goal of this paper is to demonstrate that the approach introduced in Dayri and Rosenbaum (2015) allows for an ex ante assessment of the consequences of a tick value change on the microstructure of an asset. To that purpose, we analyze the pilot program on tick value modifications started in 2014 by the Tokyo Stock Exchange in light of this methodology. We focus on forecasting the future cost of market and limit orders after a tick size change and show that our predictions are very accurate. Furthermore, for each asset involved in the pilot program, we are able to define (ex ante) an optimal tick value. This enables us to classify the stocks according to the relevance of their tick value, before and after its modification.
Keywords: Market microstructure, Tick size, Liquidity, Tokyo Stock Exchange
JEL Classification: G10, G12, G18, G20
Suggested Citation: Suggested Citation
Huang, Weibing and Lehalle, Charles-Albert and Rosenbaum, Mathieu, How to Predict the Consequences of a Tick Value Change? Evidence from the Tokyo Stock Exchange Pilot Program (July 27, 2015). Available at SSRN: https://ssrn.com/abstract=2635761 or http://dx.doi.org/10.2139/ssrn.2635761