Relative tick size and the trading environment

O'Hara, M; Saar, G; Zhong, Z

Relative tick size and the trading environment

O'Hara, M Saar, G Zhong, Z

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Publication Type:: Journal Article
Citation:: Review of Asset Pricing Studies, 2019, 9 (1), pp. 47 - 90
Issue Date:: 2019-01-01

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Full metadata record

Field	Value	Language
dc.contributor.author	O'Hara, M	en_US
dc.contributor.author	Saar, G	en_US
dc.contributor.author	Zhong, Z	en_US
dc.date.issued	2019-01-01	en_US
dc.identifier.citation	Review of Asset Pricing Studies, 2019, 9 (1), pp. 47 - 90	en_US
dc.identifier.issn	2045-9920	en_US
dc.identifier.uri	http://hdl.handle.net/10453/133527
dc.description.abstract	© The Author 2015. 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 high-frequency trading (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.	en_US
dc.relation.ispartof	Review of Asset Pricing Studies	en_US
dc.relation.isbasedon	10.1093/rapstu/ray009	en_US
dc.title	Relative tick size and the trading environment	en_US
dc.type	Journal Article
utslib.citation.volume	1	en_US
utslib.citation.volume	9	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.issue	1	en_US
pubs.publication-status	Published	en_US
pubs.volume	9	en_US

Abstract:

© The Author 2015. 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 high-frequency trading (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.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/133527