Mispricing in the Odd Lots Market in Brazil

22 Pages Posted: 22 Jun 2017

See all articles by Henrique Ramos

Henrique Ramos

Universidade Federal do Rio Grande do Sul (UFRGS)

Marcelo Perlin

Escola de Administração - UFRGS

Marcelo Righi

Universidade Federal do Rio Grande do Sul (UFRGS)

Date Written: June 20, 2017

Abstract

We study the case of mispricing in the odd lots equity market in Brazil. Contrary to expectation, odd lot investors are paying higher prices than round lot investors. The pricing difference between markets is affected by market returns, volatility and spreads. Our main hypothesis is that; once the assets traded in the odd lot market are more illiquid than their counterparts, the mispricing is driven by liquidity factors. We propose regulators to review the market design for odd lots in Brazil. We argue that reducing the minimal trading unit in the round lots market would benefit investors.

Keywords: Odd lots, market microstructure, liquidity B M &F Bovespa

JEL Classification: G11, G14

Suggested Citation

Ramos, Henrique and Perlin, Marcelo and Righi, Marcelo, Mispricing in the Odd Lots Market in Brazil (June 20, 2017). Available at SSRN: https://ssrn.com/abstract=2990468 or http://dx.doi.org/10.2139/ssrn.2990468

Henrique Ramos (Contact Author)

Universidade Federal do Rio Grande do Sul (UFRGS) ( email )

Av. Carlos Gomes 1111
Porto Alegre, Rio Grande do Sul 90480-004
Brazil

Marcelo Perlin

Escola de Administração - UFRGS ( email )

Porto-Alegre RS
Brazil

HOME PAGE: http://sites.google.com/site/marceloperlin/

Marcelo Righi

Universidade Federal do Rio Grande do Sul (UFRGS) ( email )

Washington Luis, 855
Porto Alegre, Rio Grande do Sul 90010-460
Brazil

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