Tick Size Wars, High Frequency Trading, and Market Quality

Tom Grimstvedt Meling () and Bernt Arne Ødegård ()
Additional contact information
Tom Grimstvedt Meling: University of Bergen, Department of Economics, Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen,
Bernt Arne Ødegård: University of Stavanger, Postal: Norway

No 5/17, Working Papers in Economics from University of Bergen, Department of Economics

Abstract: We show that competitive stock exchanges undercut other exchanges’ tick sizes to gain market share, and that this tick size competition increases investors’ trading costs. Our empirical analysis is focused on an event in 2009 where three stock exchanges, Chi-X, Turquoise, BATS Europe, reduced their tick sizes for stocks with an Oslo Stock Exchange (OSE) primary listing. We find that the tick size-reducing exchanges captured market shares from the large-tick OSE. Trading costs at the OSE increased while trading costs in the competing exchanges remained unchanged. High frequency trading appears to be the main driver behind the market share and trading cost results. Our findings suggest that unregulated stock markets can produce tick sizes that are excessively small.

Keywords: Equity Trading; Limit Order Markets; Tick Sizes; High Frequency Trading (search for similar items in EconPapers)
JEL-codes: G10 G20 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2017-09-06
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:bergec:2017_005

Access Statistics for this paper

More papers in Working Papers in Economics from University of Bergen, Department of Economics Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway. Contact information at EDIRC.
Bibliographic data for series maintained by Kjell Erik Lommerud ().