Tick Size, Liquidity for Small and Large Orders, and Price Informativeness: Evidence from the Tick Size Pilot Program

66 Pages Posted: 4 Aug 2018 Last revised: 15 Oct 2018

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Albert J. Lee

SUNY at Buffalo - School of Management

Dominik Rösch

State University of New York at Buffalo - School of Management; Erasmus University - Rotterdam School of Management

Date Written: October 9, 2018

Abstract

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

Chung, Kee H. and Lee, Albert and Rösch, Dominik, Tick Size, Liquidity for Small and Large Orders, and Price Informativeness: Evidence from the Tick Size Pilot Program (October 9, 2018). Available at SSRN: https://ssrn.com/abstract=3220470 or http://dx.doi.org/10.2139/ssrn.3220470

Kee H. Chung

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Albert Lee

SUNY at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

Dominik Rösch (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

HOME PAGE: http://dominikroesch.com

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

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