Tick Size and Market Quality

22 Pages Posted: 13 Jan 2005

See all articles by David C. Porter

David C. Porter

University of Wisconsin

Daniel G. Weaver

Rutgers Business School

Abstract

We examine the impact of a reduction in minimum tick size on market quality, internalization, and member profits using a transactional database of stocks listed on the Toronto Stock Exchange (TSE) for March and May, 1996. The database identifies trading classes and purpose for each trade. We find that execution costs decline for lowpriced and high-volume stocks, and we document a reduction in quoted market depth. By identifying trades that have been internalized against a member's inventory, we find that reducing tick size has a negligible impact on internalization and member profits and might result in higher commission profits.

Suggested Citation

Porter, David C. and Weaver, Daniel G., Tick Size and Market Quality. Financial Management, Vol. 26, No. 4, pp. 5-26, Winter 1997. Available at SSRN: https://ssrn.com/abstract=648224

David C. Porter (Contact Author)

University of Wisconsin ( email )

800 W. Main
College of Business and Economics
Whitewater, WI 53190
United States
414-472-1880 (Phone)
414-472-4863 (Fax)

Daniel G. Weaver

Rutgers Business School ( email )

94 Rockafeller Road
Piscataway, NJ 08854
United States
848.445.5644 (Phone)
732.445.2333 (Fax)

HOME PAGE: http://weaver.rutgers.edu

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