Tick size,market structure,and market quality |
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| Authors: | Kee H Chung Jangkoo Kang Joon-Seok Kim |
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| Institution: | (1) Department of Finance and Managerial Economics, State University of New York (SUNY) at Buffalo, Buffalo, NY 14260, USA;(2) Graduate School of Finance, Korea Advanced Institute of Science and Technology, Chungnyangni-dong, Dongdaemoon-gu, Seoul, Korea;(3) Korea Capital Market Institute, 45-2 Youido-dong, Youngdungpo-gu, Seoul, Korea |
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| Abstract: | Large tick sizes imposed on high-priced stocks on the Korea Stock Exchange (KSE) are significant binding constraints on bid-ask
spreads. Nearly 60% of quoted spreads are equal to the tick size for stocks with the largest tick size and more than 87% of
quoted spreads are equal to the tick size for stocks in the largest size portfolio. We also show that the average spread of
KSE stocks with large tick sizes is greater than that of matched NYSE stocks, whereas the average spread of KSE stocks with
the smallest tick size is smaller than the corresponding figure for the matched NYSE stocks. We interpret these results as
evidence that traders on the KSE are paying large trading costs because of the artificially imposed large tick sizes. |
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