Impacts of Tick Size Reduction on Transaction Costs | Zendy

Yu Wu | Zendy; Tim Krehbiel | Zendy; B. Wade Brorsen | Zendy

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Impacts of Tick Size Reduction on Transaction Costs

Author(s) -

Yu Wu,

Tim Krehbiel,

B. Wade Brorsen

Publication year - 2011

Publication title -

international journal of economics and finance

Language(s) - English

Resource type - Journals

eISSN - 1916-9728

pISSN - 1916-971X

DOI - 10.5539/ijef.v3n6p57

Subject(s) - tick size , market liquidity , transaction cost , stock (firearms) , economics , monetary economics , business , financial economics , finance , geography , archaeology

This study investigates the impact of changes in tick size on transaction costs of different size trades. We use samples drawn from shares with extreme high/low price and high/low trading volume to examine the impact of the 1997 and 2001 reductions in tick size on the New York Stock Exchange. For high-price low-volume NYSE shares, the 1997 change from pricing in $1/8s to pricing in $1/16ths clearly increased effective spreads for transactions of even the smallest size, but the effect of the further reductions in 2001 while still mostly positive for high-price low-volume stocks was not statistically significant. Thus, while tick size reduction does reduce liquidity costs for most stocks, it does not do so for all stocks.

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