Eighths, Sixteenths, and Market Depth: Changes in Tick Size and Liquidity Provision on the NYSE

Posted: 9 Apr 2007

See all articles by Michael A. Goldstein

Michael A. Goldstein

Babson College - Finance Division

Kenneth A. Kavajecz

Edgewood College; Phoenix Rising Advisory

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Abstract

Using limit order data provided by the NYSE, we investigate the impact of reducing the minimum tick size on the liquidity of the market. While both spreads and depths (quoted and on the limit order book) declined after the NYSE's change from eighths to sixteenths, depth declined throughout the entire limit order book as well. The combined effect of smaller spreads and reduced cumulative limit order book depth has made liquidity demanders trading small orders better off; however, traders who submitted larger orders in lower volume stocks did not benefit, especially if those stocks were low priced.

Keywords: Tick size, Limit Orders, Depth, Liquidity Provision

JEL Classification: G14

Suggested Citation

Goldstein, Michael A. and Kavajecz, Kenneth A., Eighths, Sixteenths, and Market Depth: Changes in Tick Size and Liquidity Provision on the NYSE. Journal of Financial Economics, Vol. 56, No. 1, pp. 125-149, April 2000, Available at SSRN: https://ssrn.com/abstract=979088

Michael A. Goldstein (Contact Author)

Babson College - Finance Division ( email )

320 Tomasso Hall
Babson Park, MA 02457-0310
United States
781-239-4402 (Phone)
781-239-5004 (Fax)

HOME PAGE: http://faculty.babson.edu/goldstein/

Kenneth A. Kavajecz

Edgewood College ( email )

1000 Edgewood College Dr.
Madison, WI 53711
United States
6087704677 (Phone)

Phoenix Rising Advisory ( email )

519 NORTH PINCKNEY STREET
MADISON, WI 53703
United States
6087704677 (Phone)

HOME PAGE: http://www.pr-advisory.com

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