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Institutional Trading Patterns and Price Impact around Decimilization

Author

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  • Chakravarty, Sugato
  • Panchapagesan, Venkatesh
  • Wood, Roger A.

Abstract

We examine the effect of decimalization on institutional investors using proprietary data. In particular, we examine the time and the number of trades it takes to execute a given trading decision, as well as the price impact of these trades. We use three different benchmarks to determine the price impact of a trade. Unlike the transition of the minimum tick size from eighths to sixteenths, we find no significant changes in the implicit costs of trading for institutional investors following decimalization. Our results survive extensive partitioning of the data and are surprising in light of an oft-repeated complaint among professional traders that liquidity is hard and expensive to find in a post-decimal trading milieu. These findings have important regulatory implications.

Suggested Citation

  • Chakravarty, Sugato & Panchapagesan, Venkatesh & Wood, Roger A., 2001. "Institutional Trading Patterns and Price Impact around Decimilization," Purdue University Economics Working Papers 1152, Purdue University, Department of Economics.
    • Handle: RePEc:pur:prukra:1152
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