Speed of Trade and Liquidity

Uno, Jun; Shibata, Mai

doi:10.2139/ssrn.1910200

Cited by 7 publications

(1 citation statement)

References 12 publications

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“…A direct implication of the latter is an increase in spreads for the manual traders and a decrease in spreads for the HFTRs. Coughenour and Harris (2004) show that front-running is easier for low-priced stocks and Uno and Shibata (2011) show that the decrease in spreads is also accompanied by an increase in adverse selection costs. So, crucially, the speed of quote adjustment substantially increases after a minimum tick size decrease (Chung et al 2008).…”

Section: Tick Size Changes Execution Speed and Hftmentioning

confidence: 99%

One size fits all? High frequency trading, tick size changes and the implications for exchanges: market quality and market structure considerations

Verousis

Perotti

Sermpinis

2017

Rev Quant Finan Acc

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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.

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Section: Tick Size Changes Execution Speed and Hftmentioning

confidence: 99%