Journal of Financial Intermediation Vol. 9 No. 3 2000
Tick Size, Spreads, and Liquidity: An Analysis of Nasdaq Securities Trading near Ten Dollars
Abstract
Quoted and effective bid–ask spreads on Nasdaq are two to four cents per share narrower, ceteris paribus, when stocks trade with a smaller tick size below $10 per share. There is no evidence of a reduction in liquidity with the smaller tick size. The largest spread reductions occur for stocks whose market makers avoid odd-eighth quotes. This finding provides support for models implying that changes in the tick size can affect equilibrium spreads on a dealer market and indicates that the relation between tick size and market quality is more complex than the imposition of a constraint on minimum spread widths. Journal of Economic Literature Classification Numbers: G29, D34, N20.
- DOI
- 10.1006/jfin.2000.0288
- Volume
- 9
- Issue
- 3
- Pages
- 213-239
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib