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Article Dans Une Revue Management Science Année : 2022

Tick Size, Trading Strategies and Market Quality

Résumé

We investigate the effects of a tick size change on market quality by modeling a multi-period public limit order book with endogenous liquidity demand and supply. We single out four channels of transmission and show that layering and mechanical change in spread prevail for liquid, tick size constrained stocks; while undercutting prevails for illiquid stocks. We examine the robustness of our results when order flows migrate to a competing venue. We find empirical support for our predictions by analysing tick size reductions respectively for a market with low (Tokyo Stock Exchange - 2014) and one with high fragmentation (U.S. Tick Size Pilot - 2018).
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Dates et versions

hal-03591205 , version 1 (28-02-2022)

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  • HAL Id : hal-03591205 , version 1

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Ingrid M. Werner, Barbara Rindi, Sabrina Buti, Yuanji Wen. Tick Size, Trading Strategies and Market Quality. Management Science, 2022. ⟨hal-03591205⟩
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