Tick Size, Spread and Volume
J. OF FINANCIAL INTERMEDIATION, Vol. 5 No. 1, 1996
Posted: 16 Jun 1998
The AMEX changed the tick size from $1/8 to $1/16 for low-price stocks on September 3, 1992. Consistent with the prediction of L. E. Harris (1994, Stock Price Clustering and Discreteness, Review of Financial Studies 7, 149-178), the change has reduced both quoted and effective spreads, although the magnitude of the reduction is much smaller than predicted. However, we fail to find evidence of a significant increase in trading volume. Our cross-sectional analysis shows that stocks with greater trading activity, lower prices and stronger competition from the regional exchanges experienced greater spread reductions.
JEL Classification: G10, G18, G20
Suggested Citation: Suggested Citation