Verousis, T., Perotti, P. and Sermpinis, G. (2018) One size fits all? High frequency trading, tick size changes and the implications for exchanges: market quality and market structure considerations. Review of Quantitative Finance and Accounting, 50(2), pp. 353-392. (doi: 10.1007/s11156-017-0632-2)
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Abstract
This paper offers a systematic review of the empirical literature on the implications of tick size changes for exchanges. Our focus is twofold: first, we are concerned with the market quality implications of a change in the minimum tick size. Second, we are interested in the implications of changes in the minimum tick size on market structure. We show that there is a large body of empirical literature that documents a decrease in transaction costs following a decrease in the minimum tick size. However, even though market liquidity increases, the incentive to provide market making activities decreases. We document a strong link between the minimum tick size regulations and the recent increase in high frequency trading activity. A smaller tick enhances the price discovery process. However, the question of how multiple tick size regimes affect market liquidity in a fragmented market remains to be answered. Finally, we identify topics for future research; we discuss the empirical literature on the minimum trade unit and the recent calls for a minimum resting time for quotes.
Item Type: | Articles |
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Status: | Published |
Refereed: | Yes |
Glasgow Author(s) Enlighten ID: | Verousis, Dr Thanos and Sermpinis, Professor Georgios |
Authors: | Verousis, T., Perotti, P., and Sermpinis, G. |
College/School: | College of Social Sciences > Adam Smith Business School > Economics |
Journal Name: | Review of Quantitative Finance and Accounting |
Publisher: | Springer |
ISSN: | 0924-865X |
ISSN (Online): | 1573-7179 |
Published Online: | 28 March 2017 |
Copyright Holders: | Copyright © 2017 The Authors |
First Published: | First published in Review of Quantitative Finance and Accounting 50(2):353-392 |
Publisher Policy: | Reproduced under a Creative Commons License |
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