Hostname: page-component-848d4c4894-5nwft Total loading time: 0 Render date: 2024-05-30T13:38:27.260Z Has data issue: false hasContentIssue false
  • English
  • Français

Tick Size, Bid-Ask Spreads, and Market Structure

Published online by Cambridge University Press:  06 April 2009

Roger D. Huang  and
Hans R. Stoll
Get access Rights & Permissions [Opens in a new window]

Abstract

We propose a link between market structure and the resulting market characteristics—tick size, bid-ask spreads, quote clustering, and market depth. We analyze transactions data of stocks traded on the London Stock Exchange, a dealer market. We conclude that market charateristics are endogenous to the market structure. The London dealer market does not have a mandated tick size, and it exhibits higher spreads, higher quote clusterings, and higher market depth than the NYSE auction market. Clustering of trade prices is similar in London and New York.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 36 , Issue 4 , December 2001 , pp. 503 - 522
Copyright
Copyright © School of Business Administration, University of Washington 2001

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ahn, H.; Cao, C. Q.; and Choe, H.. “Tick Size, Spread and Volume.” Journal of Financial Intermediation, 5 (1996),2–22.CrossRefGoogle Scholar
Ahn, H.; Cao, C. Q.; and Choe, H.. “Decimalization and Competition among Stock Markets: Evidence from the Tornoto Stock Exchange Cross-Listed Securities.” Journal of Financial Markets, 1 (1998), 51–87.CrossRefGoogle Scholar
Bacidore, J. M. “The Impact of Decimalization on Market Quality: An Empirical Investigation of the Tornoto Stock Exchange.” Journal of Financial Intermediation, 6 (1997), 92–120.CrossRefGoogle Scholar
Bacicore, J. M., and Sofianos, G.. “NYSE Specialist Trading in Non-U.S. Stocks” Working Paper, New York Stock Exchange (2000).Google Scholar
Barclay, M. J.; Christie, W. G.; Harris, J. H.; Kandel, E.; and Schultz, P. H.. “The Effects of Marker Reform on the Trading Costs and Depths of Nasdaq Stocks.” Journal of Finance, 54 ( 1999), 1–34CrossRefGoogle Scholar
Bessembinder, H. “Issues in Assessing Trade Execution Costs.” Working Paper, Emory Univ., Goizueta Business School (2000).CrossRefGoogle Scholar
Bollen, N. P. B., and Whaley, R. E.. “Are ‘Teenies’ Better?” Journal of Portfolio Management, 24 (1994), 10–24.Google Scholar
Chordia, T., and Subramanyam, A.. “Market Making, the Tick Size, and Payment-for-Order Flow: Theory and Evidence.” Journal of Business, 68 (1995), 543–575.CrossRefGoogle Scholar
G, Christie. W.., and Schultz, P. H.. “Why Do NASDAQ Markets Makers Avoid Odd-Eighth Quotes? Journal of Finance, 49 (1994), 1813–1840.Google Scholar
Crack, T. F. “Tinkering with the Ticks: Choosing Minimum Price Variation for U.S. Equity Markets.” Working Paper, Massachusetts Institute od Technology, Sloan School of Management (1995).Google Scholar
Dutta, P., and , A. Madhavan. “Competition and Collusion in Dealer Markets.” Journal of Finance, 52 (1997), 245–276.CrossRefGoogle Scholar
Ellis, K.; Michaely, R.; and , M. O’Hara. “Tha Accuracy of Trade Classification Rules: Evidence from Nasdaq,” Journal of Financial and Quantitative Analysis, 35 (2000), 529–551.CrossRefGoogle Scholar
Finucane, T. “A Direct Test of Methods for Inferring Trade Direction from Intra-Day Data,” Journal of Financial and Quantitative Analysis, 35 (2000), 553–576.CrossRefGoogle Scholar
Goldstein, M. A., and Kavajeez, K. A.. “Eighths, Sixteenths and Markets Depth: Changes in Tick Size and Liquidity Provision on the NYSE.” Working Papers, New York Stock Exchange (1998).Google Scholar
Harris, L. E. “Stock Price Clustering and Discreteness” Review of Financial Studies, 4 (1994), 389–415.CrossRefGoogle Scholar
Harris, L. E. “Minimum Price Variation, Distance Bid-Ask Spreads, and Quotations Sizes.” Review of Financial Studies, 4 (1994),389–415.CrossRefGoogle Scholar
Ho, T., and Stoll, H. R.. “The Dynamics of Dealer Markets under Competition.” Journal of Finance, 38 (1983),1053–1074.CrossRefGoogle Scholar
Huang, R., and Stoll, H.. “Dealer versus Auction Markets: A Paired Comparision of Execution Costs on Nasdaq and the NYSE.” Journal of Financial Economics, 41 (1996), 313–357.CrossRefGoogle Scholar
Jones, C. M., and M. L., Lipson M. L., Lipson. “Sixteenths: Direct Evidence on Institutional Trading Costs.” Journal of Financial Economics, 59 (2001), 253–278.CrossRefGoogle Scholar
Kraus, A., and Stoll, H.. “Price Impacts of Block Trading on the NYSE.” Journal of Finance, 27 (1972), 569–588.CrossRefGoogle Scholar
Lau, S. T., and McInish, T. H.. “Reducing Tick Size on the Stock Exchange of Singapore.” Pacific Basin Finance Journal, 3 (1995), 485–496.CrossRefGoogle Scholar
Lee, C. M. C., and Ready, M.. “Inferring Trade Dirceion from Intraday Data.” Journal of Finance, 27 (1991), 733–746.CrossRefGoogle Scholar
Lee, C. M. C., and Radhakrishna, B.. “Inferring Investor Behavior: Evidence from TPRQ Data.” Journal of Financial Markets, 3 (2000), 83–111.CrossRefGoogle Scholar
Odders-White, E. R. “On the Occurence and Consequences of Inaccurate Trade Classification.” Journal of Financial Markets,3 (2000), 259–286.CrossRefGoogle Scholar
Porter, D., and Weaver, D. G.. “Tick Size and Markets Quality,” Financial Management, 26 (1997), 5–26CrossRefGoogle Scholar
Ronen, T., and Weaver, D. G.. “Teenies' Anyone?” Journal of Financial Markets, 4 (2001), 231–260.CrossRefGoogle Scholar
Schultz, P. “Regulatory and Legal Pressures and the Costs of Nasdaq Trading.” Review of Financial Studies, 13 (2000), 917–957.CrossRefGoogle Scholar
Smith, J. W. “The Cross-Sectional Effects of Order Handling Rules and 16ths on Nasdaq.” Working Paper, NASD Economic Reserch (1998).Google Scholar
U.S. Securities and Exchange Commission. “Market 2000: An Examination of Current Equity Market Development.” Technical Reports, SEC (1994).Google Scholar