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Impact of Tick Size Reduction on Small Caps Price Efficiency and Execution cost on the Indonesia Stock Exchange

Author

Listed:
  • Irwan Adi Ekaputra

    (Management Department, Faculty of Economics and Business, Universitas Indonesia, Depok 16424 Indonesia)

  • Erni Sukmadini Asikin

    (Faculty of Economics and Business, Universitas Indonesia, Depok 16424, Indonesia)

Abstract

On 2 January 2007, the Indonesia Stock Exchange (IDX) implements a new tick size of Rp1 in addition to the extant Rp5, Rp10, Rp25 and Rp50 tick sizes. This research investigates the impact of tick size reduction on stock price efficiency and execution cost. The microstructure effect of the new tick size should only impact small caps traded at Rp200 or lower, for those shares were previously traded at Rp5 tick. Using OLS and quantile regressions, we find the new tick policy significantly improves small caps price efficiency and partially reduces execution cost. The new tick size moderately reduces the mean of execution cost but does not reduce the median.

Suggested Citation

  • Irwan Adi Ekaputra & Erni Sukmadini Asikin, 2012. "Impact of Tick Size Reduction on Small Caps Price Efficiency and Execution cost on the Indonesia Stock Exchange," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 8(Supp. 1), pages 1-12.
    • Handle: RePEc:usm:journl:aamjaf00811_1-12
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    References listed on IDEAS

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    1. Irwan Adi Ekaputra & Basharat Ahmad, 2007. "The Impact of Tick Size Reduction on Liquidity and Order Strategy : Evidence from the Jakarta Stock Exchange (JSX)," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 55, pages 89-104, April.
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    Cited by:

    1. Syamsul Idul Adha & A. Sakir, 2021. "Effect of Minimum Tick Size Policy on Price Efficiency and Execution Cost," Capital Markets Review, Malaysian Finance Association, vol. 29(2), pages 29-41.

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