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Relative Tick Size And The Trading Environment
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Book Synopsis Relative Tick Size and the Trading Environment by : Maureen O'Hara
Download or read book Relative Tick Size and the Trading Environment written by Maureen O'Hara and published by . This book was released on 2018 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate how and why relative tick sizes influence traders' order strategies, and how this affects liquidity provision in the market. Using unique NYSE data, we find that a larger relative tick size benefits HFT market makers: they leave orders in the book longer, trade more aggressively, and have higher profit margins. In a tick-constrained (tick-unconstrained) environment, larger relative ticks result in greater (less) depth, which is consistent with greater adverse selection coming from increased undercutting of limit orders by informed HFT market makers.
Book Synopsis The Impact of Tick Size on High Frequency Trading by : Alex Frino
Download or read book The Impact of Tick Size on High Frequency Trading written by Alex Frino and published by . This book was released on 2015 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: Listed companies and institutional investors have called on market regulators to introduce mechanisms to curb high-frequency (HF) trading in financial markets. In this paper we suggest relative tick size is one such mechanism. We investigate for a non-fragmented market two HF trading proxies: order to trade ratio and order resting time, and how it changes around stock splits and reverse splits, exogenous events which significantly impact a firm's relative tick size. We find that when a security undergoes a stock split and experiences a sudden increase in its relative tick size, it is associated with a lower order-to-trade ratio and longer order resting time, indicative of lower levels of HF trading. The reverse is true of reverse splits, HF traders prefer to trade in firms with smaller relative ticks, as the marginal cost of getting ahead in the limit order book decreases. Such behaviour is not observed in our matched sample of control firms or in a pre-HF trading environment.
Book Synopsis The Impacts of Tick Size Reduction in a Market with Multiple Tick Sizes by : Hung-Kun Chen
Download or read book The Impacts of Tick Size Reduction in a Market with Multiple Tick Sizes written by Hung-Kun Chen and published by . This book was released on 2016 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the impact of tick size reduction on market quality, placing particular focus on whether a multiple tick rule helps to mitigate the impact of a tick rule size reduction in purely order-driven markets. Using a novel dataset covering an entire limit order book, our results suggest that the tick size reduction resulted in substantial declines in effective spread, quote depth, and market depth throughout the limit order book, whereas no significant effects on either trading volume or volatility are discernible. The multiple tick schedule does not eliminate divergence in the market quality for stocks in the same tick size group or across tick size groups. Within the same tick size group, spread and depth are reduced more for those stocks with lower prices, larger capitalization levels, and higher trading frequency. Across tick size groups, the impact of the tick size reduction is found to be stronger for groups where the original tick size was more of a binding constraint and for those groups which experienced a larger (relative) tick size reduction. Overall, our results suggest that a smaller tick size has reduced transaction costs for small trades yet impaired the provision of liquidity, particularly for large trades in high capitalization and more frequently-traded stocks. As a result, the net benefit of the new tick size schedule cannot be confirmed with certainty.
Book Synopsis Tick Size Constraints, Market Structure, and Liquidity by : Mao Ye
Download or read book Tick Size Constraints, Market Structure, and Liquidity written by Mao Ye and published by . This book was released on 2019 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: We argue that a one-penny minimum tick size for all stocks priced above $1 (SEC rule 612) encourages high-frequency trading and taker/maker-fee markets. We find that non-high frequency traders (non-HFTers) are 2.62 times more likely than HFTers to provide best prices, thereby establishing price priority. The larger relative tick size for low priced stocks, however, constrain non-HFTers from providing better prices and HFTers' speed advantage helps them establish time priority over non-HFTers. Non-HFTers enter the taker/maker market more frequently than HFTers, because they can bypass tick size constraints by paying a fee to the exchange. The incentive to pay a fee is stronger when relative tick size is high. When stock splits increase relative tick size, liquidity does not improve and volume shifts to the taker/maker market. Our results indicate recent proposals to increase tick size will not improve liquidity. Instead, they will encourage high frequency trading and lead to proliferation of markets that bypass the tick size constraints.
Book Synopsis Tick Size and Limit Order Execution by : Tom M. Arnold
Download or read book Tick Size and Limit Order Execution written by Tom M. Arnold and published by . This book was released on 1997 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Why Trading Speed Matters by : Chen Yao
Download or read book Why Trading Speed Matters written by Chen Yao and published by . This book was released on 2017 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that queueing rationing under price controls drives high-frequency trading. A one-cent uniform tick size (minimal price variation) creates rents and generates queues for liquidity provision, particularly for securities with lower prices (larger relative tick sizes). Speed rations the rents to high-frequency traders (HFTs) through their time priority in the queue; non-HFTs demand liquidity despite increased liquidity provision revenue. Difference-in-differences tests using exchange-traded fund splits/reverse splits show that an increase in relative tick size increases the fraction of liquidity provided by HFTs but harms liquidity. These results challenge the proposal to increase the tick size to five cents.
Book Synopsis Market Microstructure Theory by : Maureen O'Hara
Download or read book Market Microstructure Theory written by Maureen O'Hara and published by John Wiley & Sons. This book was released on 1998-03-06 with total page 310 pages. Available in PDF, EPUB and Kindle. Book excerpt: Written by one of the leading authorities in market microstructure research, this book provides a comprehensive guide to the theoretical work in this important area of finance.
Book Synopsis Corporate Payout Policy by : Harry DeAngelo
Download or read book Corporate Payout Policy written by Harry DeAngelo and published by Now Publishers Inc. This book was released on 2009 with total page 215 pages. Available in PDF, EPUB and Kindle. Book excerpt: Corporate Payout Policy synthesizes the academic research on payout policy and explains "how much, when, and how". That is (i) the overall value of payouts over the life of the enterprise, (ii) the time profile of a firm's payouts across periods, and (iii) the form of those payouts. The authors conclude that today's theory does a good job of explaining the general features of corporate payout policies, but some important gaps remain. So while our emphasis is to clarify "what we know" about payout policy, the authors also identify a number of interesting unresolved questions for future research. Corporate Payout Policy discusses potential influences on corporate payout policy including managerial use of payouts to signal future earnings to outside investors, individuals' behavioral biases that lead to sentiment-based demands for distributions, the desire of large block stockholders to maintain corporate control, and personal tax incentives to defer payouts. The authors highlight four important "carry-away" points: the literature's focus on whether repurchases will (or should) drive out dividends is misplaced because it implicitly assumes that a single payout vehicle is optimal; extant empirical evidence is strongly incompatible with the notion that the primary purpose of dividends is to signal managers' views of future earnings to outside investors; over-confidence on the part of managers is potentially a first-order determinant of payout policy because it induces them to over-retain resources to invest in dubious projects and so behavioral biases may, in fact, turn out to be more important than agency costs in explaining why investors pressure firms to accelerate payouts; the influence of controlling stockholders on payout policy --- particularly in non-U.S. firms, where controlling stockholders are common --- is a promising area for future research. Corporate Payout Policy is required reading for both researchers and practitioners interested in understanding this central topic in corporate finance and governance.
Book Synopsis Econophysics of Order-driven Markets by : Frédéric Abergel
Download or read book Econophysics of Order-driven Markets written by Frédéric Abergel and published by Springer Science & Business Media. This book was released on 2011-04-06 with total page 316 pages. Available in PDF, EPUB and Kindle. Book excerpt: The primary goal of the book is to present the ideas and research findings of active researchers from various communities (physicists, economists, mathematicians, financial engineers) working in the field of "Econophysics", who have undertaken the task of modelling and analyzing order-driven markets. Of primary interest in these studies are the mechanisms leading to the statistical regularities ("stylized facts") of price statistics. Results pertaining to other important issues such as market impact, the profitability of trading strategies, or mathematical models for microstructure effects, are also presented. Several leading researchers in these fields report on their recent work and also review the contemporary literature. Some historical perspectives, comments and debates on recent issues in Econophysics research are also included.
Book Synopsis Tick Size, Order Handling Rules, and Trading Costs by : Kee H. Chung
Download or read book Tick Size, Order Handling Rules, and Trading Costs written by Kee H. Chung and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that the effect of the tick-size change on NASDAQ spreads depends critically on the Order Handling Rules (OHR). Our empirical results show that the tick-size reduction has no impact on the spread of NASDAQ issues that were not subject to the new OHR, but has a significant effect on the spread of NASDAQ issues that were subject to the OHR. These results indicate that smaller tick sizes are valuable in reducing market friction only if market makers compete on price with public traders. Our results are in line with the finding of prior studies that execution costs are lower in auction markets than in pure dealer markets.
Book Synopsis Guide to Financial Markets by : Marc Levinson
Download or read book Guide to Financial Markets written by Marc Levinson and published by The Economist. This book was released on 2018-07-24 with total page 250 pages. Available in PDF, EPUB and Kindle. Book excerpt: The revised and updated 7th edition of this highly regarded book brings the reader right up to speed with the latest financial market developments, and provides a clear and incisive guide to a complex world that even those who work in it often find hard to understand. In chapters on the markets that deal with money, foreign exchange, equities, bonds, commodities, financial futures, options and other derivatives, the book examines why these markets exist, how they work, and who trades in them, and gives a run-down of the factors that affect prices and rates. Business history is littered with disasters that occurred because people involved their firms with financial instruments they didn't properly understand. If they had had this book they might have avoided their mistakes. For anyone wishing to understand financial markets, there is no better guide.
Book Synopsis Empirical Market Microstructure by : Joel Hasbrouck
Download or read book Empirical Market Microstructure written by Joel Hasbrouck and published by Oxford University Press. This book was released on 2007-01-04 with total page 209 pages. Available in PDF, EPUB and Kindle. Book excerpt: The interactions that occur in securities markets are among the fastest, most information intensive, and most highly strategic of all economic phenomena. This book is about the institutions that have evolved to handle our trading needs, the economic forces that guide our strategies, and statistical methods of using and interpreting the vast amount of information that these markets produce. The book includes numerous exercises.
Book Synopsis Why Markets Should Not Necessarily Reduce Tick Size by : Fany Declerck
Download or read book Why Markets Should Not Necessarily Reduce Tick Size written by Fany Declerck and published by . This book was released on 2002 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the consequences of a change in the tick size in the Paris Bourse. Some stocks experienced a decrease in the tick size. It induced a decrease in depth at the quotes. However, in contrast with results obtained for US markets, this neither generated a change in the bid-ask spread nor a reduction in liquidity provision for large trades. Other stocks experienced an increase in the tick size. Again, this did not alter the spread, but it increased the depth at the best quotes. We also find that a relatively coarse pricing grid encourages traders to submit and expose limit orders, while a tighter grid induces frequent undercutting strategies.
Book Synopsis The Effect of Tick Size on Volatility, Trader Behavior, and Market Quality by : Tavy Ronen
Download or read book The Effect of Tick Size on Volatility, Trader Behavior, and Market Quality written by Tavy Ronen and published by . This book was released on 1998 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use the American Stock Exchange?s May 1997 market-wide adoption of $1/16 ticks to examine several hypothesis relating to tick size reduction. Specifically, we consider volatility, other aspects of market quality, trader behavior, and specialist profits. The hypothesis that volatility is directly related to tick size is supported by significant decreases in both daily and transitory volatility. Consistent with the hypothesis that market quality improves after the switch, we also find that while bid-ask spreads decline, depths do not. While we find no significant changes in overall specialist profits, we develop a direct test of changes in professional traders? activity in ?stepping ahead of the book?, and find an increase in this behavior, suggesting benefits to market orders through price improvement. Finally, we develop and test a model that shows that stocks with spreads greater than one tick may exhibit significant narrowing of spreads following a tick size reduction. Our results are consistent with the predictions of our model.
Book Synopsis The Structure and Operation of the World Gold Market by : Gary O'Callaghan
Download or read book The Structure and Operation of the World Gold Market written by Gary O'Callaghan and published by . This book was released on 1993 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dated September 1993
Book Synopsis Rethinking Decimalization The Impact of Increased Tick Sizes on Trading Activity and Volatility by : Ryan J. Whitby
Download or read book Rethinking Decimalization The Impact of Increased Tick Sizes on Trading Activity and Volatility written by Ryan J. Whitby and published by . This book was released on 2019 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we examine the trading activity and volatility of stocks influenced by the US Securities and Exchange Commission's pilot program that increased tick sizes for various samples of stocks. The objective of the program is to examine possible improvements to the market quality of small-cap stocks, which have historically been less liquid than larger-cap stocks. Using a difference-in-difference approach, we find that, relative to control stocks, the trading activity of pilot stocks does not appear to be meaningfully affected by the increase in tick sizes. Volatility, however, increases markedly for the pilot stocks vis-à-vis other stocks. These results are robust to the different sets of pilot stocks, various rollout periods, and different control groups.
Book Synopsis The Role of Tick Size in Upstairs Trading and Downstairs Trading by : Mark D. Griffiths
Download or read book The Role of Tick Size in Upstairs Trading and Downstairs Trading written by Mark D. Griffiths and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the impact of reducing the tick size on market-making behavior on The Toronto Stock Exchange. The results indicate a significant decrease in the percentage of trades of fewer than 10,000 shares involving the upstairs traders and a significant increase in the percentage of trades of fewer than 1,000 share involving the designated market makers. Consistent with this finding, the upstairs traders earn significantly lower returns on non-block trades and the designated market markers earn lower returns on trades smaller than 1,000 shares. We conclude the tick size reduction benefits the trading public.
