IDEAS home Printed from https://ideas.repec.org/a/bla/jfnres/v28y2005i1p77-96.html
   My bibliography  Save this article

The Effects Of Decimalization On Return Volatility Components, Serial Correlation, And Trading Costs

Author

Listed:
  • Yan He
  • Chunchi Wu

Abstract

We examine the composition of return volatility, serial correlation, and trading costs before and after decimalization on the New York Stock Exchange. We decompose the variance of price changes into components associated with public news, rounding errors, and market‐making frictions. We find that when stocks move from a fractional to a decimal trading system, the variance components due to market‐making frictions and rounding errors decline significantly, whereas the component due to public news remains unchanged. The serial correlation of price changes weakens substantially after decimalization. The uninformed component of bid‐ask spreads decreases significantly whereas the informed component has no significant change.

Suggested Citation

  • Yan He & Chunchi Wu, 2005. "The Effects Of Decimalization On Return Volatility Components, Serial Correlation, And Trading Costs," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 28(1), pages 77-96, March.
    • Handle: RePEc:bla:jfnres:v:28:y:2005:i:1:p:77-96
    DOI: 10.1111/j.1475-6803.2005.00115.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1475-6803.2005.00115.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1475-6803.2005.00115.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jin-Huei Yeh & Jying-Nan Wang & Chung-Ming Kuan, 2014. "A noise-robust estimator of volatility based on interquantile ranges," Review of Quantitative Finance and Accounting, Springer, vol. 43(4), pages 751-779, November.
    2. Yan He & Hai Lin & Chunchi Wu & Uric B. Dufrene, 2013. "The 2000 presidential election and the information cost of sensitive versus," Working Papers 2013-10-14, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
    3. He, Yan & Lin, Hai & Wu, Chunchi & Dufrene, Uric B., 2009. "The 2000 presidential election and the information cost of sensitive versus non-sensitive S&P 500 stocks," Journal of Financial Markets, Elsevier, vol. 12(1), pages 54-86, February.
    4. Vuorenmaa, Tommi A., 2008. "Decimalization, Realized Volatility, and Market Microstructure Noise," MPRA Paper 8692, University Library of Munich, Germany.
    5. Blau, Benjamin M., 2018. "Exchange rate volatility and the stability of stock prices," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 299-311.
    6. Thanos Verousis & Pietro Perotti & Georgios Sermpinis, 2018. "One size fits all? High frequency trading, tick size changes and the implications for exchanges: market quality and market structure considerations," Review of Quantitative Finance and Accounting, Springer, vol. 50(2), pages 353-392, February.
    7. repec:wyi:journl:002085 is not listed on IDEAS
    8. Xiao, Xijuan & Yamamoto, Ryuichi, 2024. "Realized volatility, price informativeness, and tick size: A market microstructure approach," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 410-426.
    9. Francis, Jennifer & Nanda, Dhananjay & Wang, Xin, 2006. "Re-examining the effects of regulation fair disclosure using foreign listed firms to control for concurrent shocks," Journal of Accounting and Economics, Elsevier, vol. 41(3), pages 271-292, September.
    10. Bill Hu & Joon Ho Hwang & Christine Jiang, 2014. "The Impact of Earnings Guidance Cessation on Information Asymmetry," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(1-2), pages 73-99, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfnres:v:28:y:2005:i:1:p:77-96. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/sfaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.