| Publisher | Vanderbilt University | ||
|---|---|---|---|
| Format | 81.6KB PDF, requires Acrobat Rdr 5 | Date added | 08 Feb 2001 |
| Topics | Economic Modeling | ||
| Downloads | 84 | ||
In a financial market, the minimum tick size is the minimum allowable price variation. Minimum tick rules can apply to quotes, to trades and to trade reports. The literature on market microstructure is replete with studies of attributes that affect or reflect market liquidity such as tick size, bid-ask spreads, quote clustering, and market depth. While we begin with tick size, the objective of this paper is to tie these various characteristics of markets into a more general view that reflects the underlying market structure. We examine the source and the impact of a minimum tick rule by considering stocks traded in different market structures. Specifically, we examine a set of stocks traded in London, where there is no mandated tick size, and also traded on the NYSE, where there is a mandated tick size. We conclude that market structure is the exogenous factor responsible for the presence of tick size rules and other market microstructure attributes.
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