The Price Effects of Liquidity Shocks: A Study of SEC's Tick-Size Experiment
Shiyun Song and
No 12486, CEPR Discussion Papers from C.E.P.R. Discussion Papers
This paper studies the SEC's pilot program that increased the tick size for approximately 1,200 randomly chosen stocks. We provide causal evidence of a negative impact of a larger tick size on stock prices equivalent to roughly $7 billion investor loss. We investigate direct and indirect effects of the tick size change on stock prices. We find that treated stocks experience a reduction in liquidity, but find no significant change in liquidity risk. Test stocks experience a decline in price efficiency consistent with an increase in information risk. The evidence suggests that trading frictions affect the cost of capital.
Keywords: information risk; investor horizon; JOBS Act; liquidity; liquidity premium; liquidity risk; news response rate; price efficiency; tick size pilot program (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp and nep-mst
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