Tick size, liquidity for small and large orders, and price informativeness: Evidence from the Tick Size Pilot Program

Kee H. Chung; Albert J. Lee; Dominik Rösch

doi:10.1016/j.jfineco.2019.11.004

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Journal of Financial Economics Vol. 136 No. 3 2020

Tick size, liquidity for small and large orders, and price informativeness: Evidence from the Tick Size Pilot Program

Kee H. Chung^1,2; Albert J. Lee¹; Dominik Rösch¹

¹ University at Buffalo, State University of New York · ² Sungkyunkwan University

Abstract

Using limit order books across all US exchanges, we show that while liquidity for small orders (e.g., the quoted and effective spreads) decreases, liquidity for large orders (e.g., the cumulative depth and the price impact of multiple trades) improves after the implementation of the Tick Size Pilot Program. We find significant spillover effects on liquidity for small and large orders that extend beyond the top of the book. Finally, we show that the pilot program results in an improvement in pricing efficiency, an increase in trade size, and a decrease in the number of trades.

DOI: 10.1016/j.jfineco.2019.11.004
Volume: 136
Issue: 3
Pages: 879-899
Language: en
Sources: bibtex:phds-export.bib openalex crossref

Tick size, liquidity for small and large orders, and price informativeness: Evidence from the Tick Size Pilot Program

Abstract

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