The impact of tick size on intraday stock price behavior

• Main Authors: Mei-Chu Ke, 柯美珠
• Other Authors: Yen-Sheng Huang
• Format: Others
• Language: zh-TW
• Published: 2003
• Online Access: http://ndltd.ncl.edu.tw/handle/30256506196570893803

博士 === 國立臺灣科技大學 === 企業管理系 === 91 === Tick size refers to the minimum price variation mandated by the stock exchange authority. If tick size were larger than warranted by the equilibrium condition, tick size would become a binding constraint on stock prices. The issue of how tick size affects stock price behavior is important for the design of a market trading mechanism. This research examines the impact of tick size on intraday stock price behavior for stocks listed on the Taiwan Stock Exchange over the two-year period of 1998-99. The sample involves the same 80 firms that trade under the tick size of (New Taiwan Dollars) NT$0.1 and NT$0.5 respectively. tick size is (New Taiwan Dollars) NT$0.1 for stocks priced in NT$15-50, and NT$0.5 for stocks priced in NT$ 50-150. Since tick size for stocks priced immediately above NT$50 is five times of that for stocks priced immediately below NT$50, the impact of tick size on intraday stock price behavior can be analyzed conveniently for stocks traded in the proximity of NT$50. The sample firms display a U-shaped intraday pattern of bid-ask spread, volatility, autocorrelation, and trading volume. The major empirical findings are as follows: First, tick size has a significant impact on intraday bid-ask spread, autocorrelation, and return volatility. A larger tick size is associated with a wider bid-ask spread, larger return volatility, and more negative autocorrelation. Second, a larger tick size is associated with a higher percentage increase in bid-ask spread and return volatility in the middle than in other part of the trading period. Since intraday patterns of bid-ask spread and return volatility are U-shaped, a large tick size tends to be binding in the middle than in other part of the trading period. Finally, the impact of tick size on intraday trading volume is less significant.