Price Clustering on the Tokyo Stock Exchange
Posted: 26 Apr 2007
This paper examines price clustering on the Tokyo Stock Exchange. Regardless of tick and lot size, prices ending in zero and five are the most popular. The TSE has no market makers or direct negotiation between traders; therefore, clustering is not explained by collusion or negotiation. Our evidence supports the attraction hypothesis. Clustering also extends to order book depth. There is evidence of strategic trading behavior as traders place orders one price tick better than zero and five to avoid queuing orders at prices ending in these digits. Strategic trading behavior declined and clustering increased when the market became anonymous.
Keywords: Price clustering, depth clustering, limit order market, Tokyo Stock Exchange, anonymity
JEL Classification: G15, G14
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