Tick Size, Spread and Volume

J. OF FINANCIAL INTERMEDIATION, Vol. 5 No. 1, 1996

Posted: 16 Jun 1998

See all articles by Charles Cao

Charles Cao

Pennsylvania State University

Hyuk Choe

Seoul National University - College of Business Administration

Abstract

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

Cao, Charles and Choe, Hyuk, Tick Size, Spread and Volume. J. OF FINANCIAL INTERMEDIATION, Vol. 5 No. 1, 1996. Available at SSRN: https://ssrn.com/abstract=7516

Charles Cao (Contact Author)

Pennsylvania State University ( email )

Department of Finance
Smeal College of Business
University Park, PA 16802
United States
814-865-7891 (Phone)
814-865-3362 (Fax)

HOME PAGE: http://www.personal.psu.edu/qxc2/cao.html

Hyuk Choe

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)
822-880 8257 (Phone)
822-882 0547 (Fax)

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