Tick Size Reduction and Market Quality: The Stockholm Stock Exchange

Detta är en C-uppsats från Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

Sammanfattning: The implementation of the FESE tick size table 2 on June 7 2010 meant a reduction in the minimum tick size for all Large Cap stocks on the Stockholm Stock Exchange. By using order data from Nasdaq OMX, this study investigates the impact of the tick size reduction on market quality by examining quoted bid-ask spread, quoted depth, trading volume and volatility. The performed Wilcoxon rank-sum tests and difference-in-difference regressions provide significant empirical results of a reduction in bid-ask spread and depth along with an increase in trading volume. The reduction of the bid-ask spread is greatest for low-priced and high-volume stocks, for which the tick size is is more likely to be a binding constraint. These findings are similar to much of the findings presented by previous research. This study concludes that this particular tick size reduction meant an enhanced market quality for small investors while the effect for large investors remained ambiguous. No significant findings were made regarding how the return volatility was affected by the tick size reduction.

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