The impact of reducing the minimum tick size on market liquidity and price clustering on the Taiwan Stock Exchange

• Main Authors: Chien-Feng Su, 蘇建豐
• Other Authors: Chao-shin Chiao
• Format: Others
• Language: zh-TW
• Published: 2007
• Online Access: http://ndltd.ncl.edu.tw/handle/34c9m6

碩士 === 國立東華大學 === 國際經濟研究所 === 95 === Abstract Applying order-level data, this paper examines the impact of reducing the minimum tick sizes on price clustering and market liquidity in the Taiwan Stock Exchange. After the reduction in tick sizes, we observe an abnormally high frequency of integer prices and a negatively indirect effect of tick sizes on the bid-ask spreads that operates through its effect on price clustering. After explicitly controlling for this indirect effect, smaller tick sizes indeed reduce bid-ask spreads, but the total effect diminishes. Although the supply of liquidity on the limit order book falls due to fewer non-marketable limit orders, the effective spreads do not deteriorate. Even for large-size trades, the transaction costs are found to be improved.