The authors examine the impact of tick size on volatility and trade behavior which previous studies have failed to adequately define. In their concluding remarks, the authors indicate the importance of their findings on overall market quality, "The results of this paper may be viewed as indicating improved market quality after the tick after the tick reduction (adopted market wide in may of 1997), and are consistent with current research." Having developed a test model which demonstrates that stocks with spreads greater than one tick may exhibit significant narrowing of spreads after the reduction, their findings are consistent with their own predictions.
is study has a threefold impact, first testing the theoretical that volatility is directly related to tick size, secondly testing hypotheses pertaining to changes in trade behavior and specialist profits, and finally the testing of theoretical predictions using confidential data base information proved by the American Stock Exchange. ... download the eBook to read more
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