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

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  • 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)

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    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.

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    Bibliographic Info

    Article provided by Penerbit Universiti Sains Malaysia in its journal Asian Academy of Management Journal of Accounting and Finance.

    Volume (Year): 8 (2012)
    Issue (Month): Supp. 1 ()
    Pages: 1-12

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    Handle: RePEc:usm:journl:aamjaf00811_1-12

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    Web page: http://web.usm.my/aamj/
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    Related research

    Keywords: tick size; small caps; price efficiency; execution cost; Indonesia;

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    1. Ahn, Hee-Joon & Cai, Jun & Chan, Kalok & Hamao, Yasushi, 2007. "Tick size change and liquidity provision on the Tokyo Stock Exchange," Journal of the Japanese and International Economies, Elsevier, vol. 21(2), pages 173-194, June.
    2. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2008. "Liquidity and market efficiency," Journal of Financial Economics, Elsevier, vol. 87(2), pages 249-268, February.
    3. Pantisa Pavabutr & Sukanya Prangwattananon, 2009. "Tick size change on the Stock Exchange of Thailand," Review of Quantitative Finance and Accounting, Springer, vol. 32(4), pages 351-371, May.
    4. David C. Porter & Daniel G. Weaver, 1997. "Tick Size and Market Quality," Financial Management, Financial Management Association, vol. 26(4), Winter.
    5. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521845731, Fall.
    6. Michael A. Goldstein & Kenneth A. Kavajecz, . "Eighths, Sixteenths and Market Depth: Changes in Tick Size and Liquidity Provision on the NYSE," Rodney L. White Center for Financial Research Working Papers 14-98, Wharton School Rodney L. White Center for Financial Research.
    7. Comerton-Forde, Carole & Rydge, James, 2006. "The current state of Asia-Pacific stock exchanges: A critical review of market design," Pacific-Basin Finance Journal, Elsevier, vol. 14(1), pages 1-32, January.
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