The Impacts of Minimum Trading Units and Tick Size Changes on Bid-ask Spread, Depth, and Trading Volume: Evidence from the Indonesia Stock Exchange

J. Glob. Bus. Trade Vol. 15 No. 1, 39-59, May 2019

21 Pages Posted: 14 Mar 2020

See all articles by Eddy Junarsin

Eddy Junarsin

Universitas Gadjah Mada (UGM)

Enrico Libert

affiliation not provided to SSRN

Jordan Kristanto

affiliation not provided to SSRN

Date Written: 2019

Abstract

Purpose – This research aims to analyze the differences in the bid-ask spread, depth, and trading volume after a new tick size and minimum trading unit policy were imposed by the Indonesian Stock Exchange (IDX) on January the 6th, 2014.

Design/Methodology/Approach – This research is exercised on the three variables of liquidity, i.e. the bid-ask spread, the depth, and the trading volume. This research used a paired difference test to measure the impact before and after the policy was imposed.

Findings – The results showed that the smaller the tick size, the greater the average decrease of the bid-ask spread, ask depth, and bid depth, but the trading volume did not show a significant average difference.

Research Implications – The tick size reduction was consistent and supported the previous research from different countries. The bid-ask spread, ask depth, and bid depth significantly decreased, and the trading volume had a tendency to increase as well, although it was not significant.

Results are aimed at the IDX and Bapepam as additional information related to the changes that occurred as a result of the implementation of the new policy in stock trading. Investors can use the information from this study to make investment decisions.

Keywords: bid-ask spread, depth, tick size, volume

JEL Classification: G11, G12, G14, G18

Suggested Citation

Junarsin, Eddy and Libert, Enrico and Kristanto, Jordan, The Impacts of Minimum Trading Units and Tick Size Changes on Bid-ask Spread, Depth, and Trading Volume: Evidence from the Indonesia Stock Exchange (2019). J. Glob. Bus. Trade Vol. 15 No. 1, 39-59, May 2019, Available at SSRN: https://ssrn.com/abstract=3536674

Eddy Junarsin (Contact Author)

Universitas Gadjah Mada (UGM) ( email )

Bulaksumur, Yogyakarta
Yogyakarta, Special Province of Yogyakarta
Indonesia

Enrico Libert

affiliation not provided to SSRN

Jordan Kristanto

affiliation not provided to SSRN

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