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Liquidity And Quote Clustering In A Market With Multiple Tick Sizes

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  • Kee H. Chung
  • Kenneth A. Kim
  • Pattanaporn Kitsabunnarat

Abstract

We analyze market liquidity (i.e., spreads and depths) and quote clustering using data from the Kuala Lumpur Stock Exchange (KLSE), where the tick size increases with share price in a stepwise fashion. We find that stocks that are subject to larger mandatory tick sizes have wider spreads and less quote clustering. We also find that liquidity providers on the KLSE do not always quote larger depths for stocks with larger tick sizes. Overall, our results suggest that larger tick sizes for higher priced stocks are detrimental to market liquidity, although the adverse effect of larger tick sizes is mitigated by lower negotiation costs (i.e., less quote clustering). 2005 The Southern Finance Association and the Southwestern Finance Association.

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Bibliographic Info

Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

Volume (Year): 28 (2005)
Issue (Month): 2 ()
Pages: 177-195

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Handle: RePEc:bla:jfnres:v:28:y:2005:i:2:p:177-195

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Cited by:
  1. Paresh Kumar Narayan & Russell Smyth, 2011. "Has political instability contributed to price clustering on Fiji's stock market?," Financial Econometics Series, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance 2011_03, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  2. ap Gwilym, Owain & Verousis, Thanos, 2010. "Price clustering and underpricing in the IPO aftermarket," International Review of Financial Analysis, Elsevier, Elsevier, vol. 19(2), pages 89-97, March.
  3. Kee Chung & Jangkoo Kang & Joon-Seok Kim, 2011. "Tick size, market structure, and market quality," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 36(1), pages 57-81, January.
  4. Ascioglu, Asli & Comerton-Forde, Carole & McInish, Thomas H., 2010. "An examination of minimum tick sizes on the Tokyo Stock Exchange," Japan and the World Economy, Elsevier, Elsevier, vol. 22(1), pages 40-48, January.
  5. Pantisa Pavabutr & Sukanya Prangwattananon, 2009. "Tick size change on the Stock Exchange of Thailand," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 32(4), pages 351-371, May.

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