IDEAS home Printed from https://ideas.repec.org/a/wsi/rpbfmp/v11y2008i04ns0219091508001490.html
   My bibliography  Save this article

Impact of Tick-Size Reduction on the Market Liquidity — Evidence from the Emerging Order-Driven Market

Author

Listed:
  • Tzung-Yuan Hsieh

    (Department of Business Administration, National Cheng Kung University, Taiwan, 1, University Road, Tainan, Taiwan 701, Taiwan)

  • Shaung-Shii Chuang

    (Department of Business Administration, National Cheng Kung University, Taiwan, 1, University Road, Tainan, Taiwan 701, Taiwan)

  • Ching-Chung Lin

    (Department of Business Administration, Kao Yuan University, Taiwan 1821, Chong-Shan Road, Lujhu Township, Kaohsiung County, Taiwan 821, Taiwan)

Abstract

Empirical studies on the influence of tick-size reduction towards market liquidity have focused almost exclusively on quote-driven markets in developed nations, and generally their findings are based on time periods of less than one year. This work investigates the influence of tick-size reduction and the relaxations of binding-constraint probability on market liquidity in the Taiwanese stock market, an emerging order-driven market, starting on March 1, 2005. The empirical results show that the spread, depth, market liquidity, and binding-constraint probability all decrease following the tick-size reduction, especially for low-priced stocks. These results can be attributed to relaxation of binding constraints. Additionally, stocks that are frequently traded, have larger market capitalization, or have restrictive binding constraints, experience considerable declines in spread, depth, and market liquidity following tick-size reduction. Trading activity plays an important role in explaining changes in spread, depth, market liquidity, and binding constraints. Thus, tick-size reduction in the Taiwanese Stock Market can increase market efficiency and reduce the investors' trading costs.

Suggested Citation

  • Tzung-Yuan Hsieh & Shaung-Shii Chuang & Ching-Chung Lin, 2008. "Impact of Tick-Size Reduction on the Market Liquidity — Evidence from the Emerging Order-Driven Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 11(04), pages 591-616.
    • Handle: RePEc:wsi:rpbfmp:v:11:y:2008:i:04:n:s0219091508001490
    DOI: 10.1142/S0219091508001490
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0219091508001490
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0219091508001490?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mike Derksen & Bas Kleijn & Robin de Vilder, 2020. "Effects of MiFID II on stock price formation," Papers 2003.10353, arXiv.org, revised Aug 2020.
    2. Murphy Jun Jie Lee, 2013. "The Microstructure of Trading Processes on the Singapore Exchange," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 4, July-Dece.
    3. Murphy Jun Jie Lee, 2013. "The Microstructure of Trading Processes on the Singapore Exchange," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2013.

    More about this item

    Keywords

    Binding-constraint probability; depth; market liquidity; spread; tick-size reduction; JEL Classification: G14; JEL Classification: G15;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:rpbfmp:v:11:y:2008:i:04:n:s0219091508001490. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/rpbfmp/rpbfmp.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.