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Tick size, liquidity for small and large orders, and price informativeness: Evidence from the Tick Size Pilot Program

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  • Chung, Kee H.
  • Lee, Albert J.
  • Rösch, Dominik

Abstract

Using limit order books across all US exchanges, we show that while liquidity for small orders (e.g., the quoted and effective spreads) decreases, liquidity for large orders (e.g., the cumulative depth and the price impact of multiple trades) improves after the implementation of the Tick Size Pilot Program. We find significant spillover effects on liquidity for small and large orders that extend beyond the top of the book. Finally, we show that the pilot program results in an improvement in pricing efficiency, an increase in trade size, and a decrease in the number of trades.

Suggested Citation

  • Chung, Kee H. & Lee, Albert J. & Rösch, Dominik, 2020. "Tick size, liquidity for small and large orders, and price informativeness: Evidence from the Tick Size Pilot Program," Journal of Financial Economics, Elsevier, vol. 136(3), pages 879-899.
    • Handle: RePEc:eee:jfinec:v:136:y:2020:i:3:p:879-899
    DOI: 10.1016/j.jfineco.2019.11.004
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    More about this item

    Keywords

    Liquidity; Tick size; Pilot program; Pricing efficiency; Liquidity spillover;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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