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Tick size, liquidity for small and large orders, and price informativeness: Evidence from the Tick Size Pilot Program

Kee H. Chung, Albert J. Lee and Dominik Rösch

Journal of Financial Economics, 2020, vol. 136, issue 3, 879-899

Abstract: Using limit order books across all US exchanges, we show that while liquidity for small orders (e.g., the quoted and effective spreads) decreases, liquidity for large orders (e.g., the cumulative depth and the price impact of multiple trades) improves after the implementation of the Tick Size Pilot Program. We find significant spillover effects on liquidity for small and large orders that extend beyond the top of the book. Finally, we show that the pilot program results in an improvement in pricing efficiency, an increase in trade size, and a decrease in the number of trades.

Keywords: Liquidity; Tick size; Pilot program; Pricing efficiency; Liquidity spillover (search for similar items in EconPapers)
JEL-codes: G10 G14 G18 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jfineco.2019.11.004

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