Journal of Financial Intermediation Vol. 15 No. 1 2006
So who gains from a small tick size?
Abstract
We investigate the relation between price discreteness and the number of dealers in a dealer market. We present a model featuring a finite number of dealers competing in prices for supplying liquidity to a forthcoming market order. We find that a decrease in tick size benefits dealers and tends to hurt investors when the number of dealers for a stock is small. In contrast, a decrease in tick size hurts dealers and benefits investors when the number of dealers is large. This result yields several new empirical implications relating a change in tick size to entry and exit of dealers, order aggressiveness and transaction rates.
- DOI
- 10.1016/j.jfi.2004.09.003
- Volume
- 15
- Issue
- 1
- Pages
- 32-66
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref