LIQUIDITY AND QUOTE CLUSTERING IN A MARKET WITH MULTIPLE TICK SIZES

Journal of Financial Research - Tập 28 Số 2 - Trang 177-195 - 2005
Kee H. Chung1, Kenneth A. Kim1, Pattanaporn Chatjuthamard2
1State University of New York at Buffalo.
2Texas A&M International University,

Tóm tắt

AbstractWe analyze market liquidity (i.e., spreads and depths) and quote clustering using data from the Kuala Lumpur Stock Exchange (KLSE), where the tick size increases with share price in a stepwise fashion. We find that stocks that are subject to larger mandatory tick sizes have wider spreads and less quote clustering. We also find that liquidity providers on the KLSE do not always quote larger depths for stocks with larger tick sizes. Overall, our results suggest that larger tick sizes for higher priced stocks are detrimental to market liquidity, although the adverse effect of larger tick sizes is mitigated by lower negotiation costs (i.e., less quote clustering).

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Journal of Financial Research

Tập 28 Số 2

177-195

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