Tick Size, Liquidity for Small and Large Orders, and Price Informativeness: Evidence from the Tick Size Pilot Program
86 Pages Posted: 4 Aug 2018 Last revised: 20 May 2019
Date Written: May 19, 2019
Using limit order books across all U.S. exchanges, we show that while liquidity for small orders (e.g., the quoted and effective spreads) decreases, liquidity for large orders (e.g., the cumulative depth and the price impact of multiple trades) improves after the implementation of the Tick Size Pilot Program. We find significant spillover effects on liquidity for small and large orders which extend beyond the top of the book. Finally, we show that the pilot program results in an improvement in pricing efficiency, an increase in trade size, and a decrease in the number of trades.
Keywords: Tick size; Pilot program; Pricing efficiency; Liquidity spillover
JEL Classification: G10, G14, G18
Suggested Citation: Suggested Citation