Tick Size, Liquidity for Small and Large Orders, and Price Informativeness: Evidence from the Tick Size Pilot Program
65 Pages Posted: 4 Aug 2018 Last revised: 16 Aug 2018
Date Written: August 15, 2018
This study analyzes the effects of the Tick Size Pilot Program on liquidity, pricing efficiency, and trading activity. We show that although the execution cost of small market orders increases, the expected execution cost of large orders decreases significantly using limit order books across all U.S. exchanges. We provide plausible explanations for these results by exploring several important implications of the quote, trade, and trade-at rules implemented in the program. We also find a significant improvement in pricing efficiency, an increase in trade size, and a decrease in number of trades, but no change in analyst following and institutional ownership.
Keywords: Liquidity, Tick Size, Pilot Program, Pricing Efficiency, Bid-Ask Spread, Trading Cost
JEL Classification: G10, G14, G18
Suggested Citation: Suggested Citation