Tick size, market structure, and market quality

Tick size, market structure, and market quality Large tick sizes imposed on high-priced stocks on the Korea Stock Exchange (KSE) are significant binding constraints on bid-ask spreads. Nearly 60% of quoted spreads are equal to the tick size for stocks with the largest tick size and more than 87% of quoted spreads are equal to the tick size for stocks in the largest size portfolio. We also show that the average spread of KSE stocks with large tick sizes is greater than that of matched NYSE stocks, whereas the average spread of KSE stocks with the smallest tick size is smaller than the corresponding figure for the matched NYSE stocks. We interpret these results as evidence that traders on the KSE are paying large trading costs because of the artificially imposed large tick sizes. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Tick size, market structure, and market quality

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Publisher
Springer US
Copyright
Copyright © 2010 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-010-0171-6
Publisher site
See Article on Publisher Site

Abstract

Large tick sizes imposed on high-priced stocks on the Korea Stock Exchange (KSE) are significant binding constraints on bid-ask spreads. Nearly 60% of quoted spreads are equal to the tick size for stocks with the largest tick size and more than 87% of quoted spreads are equal to the tick size for stocks in the largest size portfolio. We also show that the average spread of KSE stocks with large tick sizes is greater than that of matched NYSE stocks, whereas the average spread of KSE stocks with the smallest tick size is smaller than the corresponding figure for the matched NYSE stocks. We interpret these results as evidence that traders on the KSE are paying large trading costs because of the artificially imposed large tick sizes.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Mar 17, 2010

References

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