From Cents to Half-Cents and Its Impact on Liquidity
28 Pages Posted: 5 Mar 2013 Last revised: 30 Sep 2014
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: Suggested Citation