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Does tick size influence price discovery? Evidence from the Toronto Stock Exchange
Author(s) -
Beaulieu MarieClaude,
Ebrahim Shafiq K.,
Morgan Ieuan G.
Publication year - 2003
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.10053
Subject(s) - tick size , price discovery , economics , financial economics , index (typography) , futures contract , stock exchange , stock index futures , futures market , stock market index , index fund , monetary economics , econometrics , stock market , open end fund , institutional investor , finance , geography , corporate governance , context (archaeology) , archaeology , world wide web , computer science
We investigate the price discovery role of an exchange‐traded fund and the futures contract for thesame market index. We find that the fund predicts the index in the subperiod after but not in the subperiodbefore a substantial decrease in the minimum tick size. The futures predict the index in both subperiods. Theresults are consistent with the view that the factors leading to successful price discovery do not depend onzero investment, as in futures markets, but do depend on a small tick size. © 2003 Wiley Periodicals, Inc.Jrl Fut Mark 23:49–66, 2003