The Impact of Minimum Trading Units on Stock Value and Price Volatility

Hauser, Shmuel; Lauterbach, Beni

doi:10.2139/ssrn.314389

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The Impact of Minimum Trading Units on Stock Value and Price Volatility

EFMA 2002 London Meetings

29 Pages Posted: 19 Jun 2002

See all articles by Shmuel Hauser

Shmuel Hauser

Ben-Gurion University of the Negev - School of Management; Government of the State of Israel - Israel Securities Authority

Beni Lauterbach

Bar-Ilan University - Graduate School of Business Administration; European Corporate Governance Institute (ECGI)

Date Written: March 2002

Abstract

We study how minimum trading unit changes on the Tel-Aviv Stock Exchange impact stock trading activity, price volatility and value. The value effects are consistent with Merton (1987)'s model, that is an increase in the investor base (trading volume) and a decrease in price noisiness affect stock value positively. Our results extend Amihud Mendelson and Uno (1999)'s tests of Melson (1987) by demonstrating a clear relation between price noisiness changes and stock value changes, and by showing that the response to a minimum trading unit decrease becomes less favorable (and arguably even negative) in the thinnest trading stocks.

Suggested Citation: Suggested Citation

Hauser, Shmuel and Lauterbach, Beni, The Impact of Minimum Trading Units on Stock Value and Price Volatility (March 2002). EFMA 2002 London Meetings, Available at SSRN: https://ssrn.com/abstract=314389 or http://dx.doi.org/10.2139/ssrn.314389