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Does better liquidity for large orders attract institutional investors and analysts? Evidence from the Tick Size Pilot Program

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  • Deng, Mengdie
  • Lin, Tse-Chun
  • Zhou, Jiayu

Abstract

Based on the SEC's Tick Size Pilot Program, we adopt a difference-in-differences design and find that the improved liquidity for large orders increases their ownership of the treatment firms with a larger tick size during the program. The effect is concentrated among firms with lower liquidity for large orders ex ante and mainly comes from dedicated investors and quasi-indexers. We also find that analyst coverage and forecast accuracy increase for the treatment firms, plausibly catering to the increased information demand of institutional investors. Consequently, price efficiency increases as well. Overall, we show the bright side of this controversial program.

Suggested Citation

  • Deng, Mengdie & Lin, Tse-Chun & Zhou, Jiayu, 2024. "Does better liquidity for large orders attract institutional investors and analysts? Evidence from the Tick Size Pilot Program," Journal of Financial Markets, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:finmar:v:67:y:2024:i:c:s138641812300068x
    DOI: 10.1016/j.finmar.2023.100870
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    More about this item

    Keywords

    Tick size pilot program; Institutional investors; Liquidity for large orders; Analyst coverage; Forecast accuracy;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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