Tick Size, Trading Strategies, and Market Quality

• 成果类型: Article
• 署名作者: Werner, Ingrid M.; Rindi, Barbara; Buti, Sabrina; Wen, Yuanji
• 署名单位: University System of Ohio; Ohio State University; Bocconi University; Bocconi University; Universite PSL; Universite Paris-Dauphine; Centre National de la Recherche Scientifique (CNRS); University of Western Australia
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.4502
• 发表日期: 2023
• 页码: 3818-3837
• 关键词: limit order markets; TICK SIZE; liquidity; Market microstructure

摘要

We investigate the effects of a tick-size reduction on market quality in a multi-period limit order book market. For illiquid stocks, reducing the tick size facilitates under-cutting and discourages liquidity provision, resulting in deteriorating market quality but higher volume. For liquid stocks, reducing the tick size curtails queues, resulting in lower depth and volume but narrower spread. With a competing crossing network, a tick-size reduction results in worse market quality for all stocks due tomigration of order flows. We empirically test our model predictions and find support for recent tick-size reductions in Japan and the United States.