From Cents to Half-Cents and Its Impact on Liquidity

28 Pages Posted: 5 Mar 2013 Last revised: 30 Sep 2014

See all articles by Hamish D. Anderson

Hamish D. Anderson

Massey University - School of Economics and Finance

Yuan Peng

Massey University - School of Economics and Finance

Date Written: March 3, 2013

Abstract

In 2011 the New Zealand Exchange (NZX) reduced the minimum tick size from $0.01 to $0.005 for a selection of dual-listed and property stocks with the stated goal of boosting NZX liquidity. We examine this goal by measuring its impact on quoted and effective spread, volume, depth, and binding-constraint percentage. After controlling for firms matched on similar liquidity characteristics, both spread and depth significantly decline. Further, small firms do not enjoy the same liquidity benefits as large firms. While firms with high binding-constraints probability experience greater declines in spread, the negative impact on depth is even greater for these firms.

Keywords: Tick size, Liquidity, Spread, Depth, Trading volume, New Zealand

JEL Classification: G10, G12

Suggested Citation

Anderson, Hamish D. and Peng, Yuan, From Cents to Half-Cents and Its Impact on Liquidity (March 3, 2013). Available at SSRN: https://ssrn.com/abstract=2229025 or http://dx.doi.org/10.2139/ssrn.2229025

Hamish D. Anderson (Contact Author)

Massey University - School of Economics and Finance ( email )

New Zealand

Yuan Peng

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
34
Abstract Views
347
PlumX Metrics