‘Teenies’ anyone?

Ronen, Tavy; Weaver, Daniel G.

doi:10.1016/s1386-4181(00)00023-9

Cited by 79 publications

(37 citation statements)

References 25 publications

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“…These last results provide further evidence of the effect of the minimum tick size reduction on transaction costs in option markets. Overall, these findings are consistent with those reported for equity markets by, among others 29 , Henker and Martens (2005), Bessembinder (2003), Ronen and Weaver (2001), Foucault (1999), and Bollen and Whaley (1998) and for futures markets by Kurov (2008) who found that the reduction in the minimum tick size reduced the effective spreads for the floor traded and the electronically traded E-mini Nasdaq 100 index futures.…”

supporting

confidence: 90%

Tick Size Reduction and Price Discovery in Option Markets: An Empirical Investigation

et al. 2011

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We examine the impact of the tick size reduction introduced by the CBOE in 2007 in its second pilot program on the simultaneous price discovery process in the markets for options and their underlying securities. We first document a major dependence in both the Information Shares (IS) and Component Shares (CS) approaches to the estimation of the price discovery metrics on the inversion method of the option value to find the implied stock price. We then introduce a more accurate inversion method that results in a major increase in the information shares of option markets for both IS and CS metrics compared to the dominant Lagged Implied Volatility (LIV) inversion method. In all cases, however, we document a major impact of the tick size reduction in the option market that increases the option market information shares for all metrics and all inversion methods.

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supporting

confidence: 90%

Tick Size Reduction and Price Discovery in Option Markets: An Empirical Investigation

et al. 2011

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“…Both absolute and relative spreads have been found to decrease. As predicted for example by the Harris (1994) model, Ahn, Cao, and Choe (1996) and Ronen and Weaver (2001) find that the tick size decrease from eights to sixteenths reduced the quoted and effective spreads on the American Stock Exchange (AMEX). Similar evidence is reported for the change to five cents on the Toronto Stock Exchange (TSE) [e.g., Bacidore (1997)], from eights to sixteenths on the NYSE [Ricker (1998), Bollen and Whaley (1998), and Goldstein and Kavajecz (2000)], and from sixteenths to cents on the NYSE and the Nasdaq [Bessembinder (2003)].…”

Section: Review Of Decimalization Effectsmentioning

confidence: 84%

“…Ahn, Cao, and Choe (1996) and Ronen and Weaver (2001) however find no significant changes in quoted depth or trading activity on the AMEX. On the other hand, Bacidore (1997) and Porter and Weaver (1997) find depth to decrease but trading volume to remain constant on the TSE.…”

Section: Review Of Decimalization Effectsmentioning

confidence: 93%

“…The effects on more elaborate concepts are not as clear, however. Although volatility is almost unanimously reported to decrease [see, e.g., Ronen and Weaver (2001)], most of the empirical studies use unprecise estimation methods and sparsely sampled data that weaken the results. And with only very few exceptions [He and Wu (2005)] do these studies decompose volatility in any way.…”

Section: Introductionmentioning

confidence: 99%

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Decimalization, Realized Volatility, and Market Microstructure Noise

Vuorenmaa¹

2010

SSRN Journal

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This paper studies empirically the effect of decimalization on volatility and market microstructure noise. We apply several non-parametric estimators in order to accurately measure volatility and market microstructure noise variance before and after the final stage of decimalization which, on the NYSE, took place in January, 2001. We find that decimalization decreased observed volatility by decreasing noise variance and, consequently, increased the significance of the true signal especially in the trade price data for the high-activity stocks. In general, however, most of the found increase in the signal-to-noise ratio is explainable by confounding and random effects. We also find that although allowing for dependent noise can matter pointwisely, it does not appear to be critical in our case where the estimates are averaged over time and across stocks. For that same reason rare random jumps are not critical either. It is more important to choose a proper data type and prefilter the data carefully.JEL Classification: C14, C19.

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“…With regard to the implications of a tick size change to market structure, Alexander and Peterson (2002) show that a small tick is in contrast with the objectives of the Uptick Rule. 6 In addition, a smaller tick size encourages front-running in the limit order book (Ronen andWeaver 2001 andPortniaguina et al 2006). Finally, Biais et al (2010) show the effect of the tick size change on market structure through the change in competition between Island and Nasdaq.…”

Section: Tick Size Changes and Volatilitymentioning

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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‘Teenies’ anyone?

Cited by 79 publications

References 25 publications

Tick Size Reduction and Price Discovery in Option Markets: An Empirical Investigation

Tick Size Reduction and Price Discovery in Option Markets: An Empirical Investigation

Decimalization, Realized Volatility, and Market Microstructure Noise

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

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