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

85 Pages Posted: 4 Aug 2018 Last revised: 8 Aug 2019

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: August 5, 2019

Abstract

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

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 (August 5, 2019). Journal of Financial Economics (JFE), Forthcoming. 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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