The Effect of Reductions in Minimum Trading Units on Equity Premiums

Naoto Isaka and Hiroshi Yoshikawa
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Naoto Isaka: Meisei University
Hiroshi Yoshikawa: Nomura Securities Company

No 10, Discussion Papers from Meisei University, School of Economics

Abstract: We empirically examine the effect of reductions in Minimum Trading Units (MTUs) on equity premiums from October 2001 to March 2005 in the Japanese stock markets. We estimate weekly equity premiums around the MTU changes and find that (1) idiosyncratic risk was reflected in the equity premium before the MTU reductions, (2) the idiosyncratic risk premium significantly decreased after the MTU reductions, and (3) reductions in the idiosyncratic risk premium were associated with diversification of the risk caused by an increasing number of individual shareholders. These findings are also confirmed, in part, for a stock split sample.

Keywords: minimum trading units; stock splits; equity premium (search for similar items in EconPapers)
JEL-codes: G12 G14 G32 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2008-01
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:mei:wpaper:10

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