The effect of tick size on managerial learning from stock prices |
| |
Affiliation: | 1. University of Illinois at Urbana-Champaign and NBER, USA;2. University of Illinois at Urbana-Champaign, USA;1. Simon Business School, University of Rochester, USA;2. Haas School of Business, University of California at Berkeley, USA;1. SKK Business School, Sungkyunkwan University, South Korea;2. College of Business Administration, University of Seoul, South Korea |
| |
Abstract: | We investigate the effect of tick size, a key feature of market microstructure, on managerial learning from stock prices. Using a randomized controlled tick-size experiment, the 2016 Tick Size Pilot Program, we find that a larger tick size increases a firm's investment sensitivity to stock prices, suggesting that managers glean more new information from stock prices to guide their investment decisions as the tick size increases. Consistently, we also find that changes in managerial beliefs, as reflected in adjustments of forecasted capital expenditures, respond more strongly to market feedback under a larger tick size. Additional evidence suggests the following mechanism through which tick size affects managerial learning: a larger tick size reduces algorithmic trading, in turn encouraging fundamental information acquisition. Increased fundamental information acquisition generates incremental information about growth opportunities, macroeconomic factors, and industry factors, with respect to which the market has a comparative information advantage over management. |
| |
Keywords: | Tick size Managerial learning Revelatory price efficiency Management capex forecast Market feedback G14 G31 M40 M41 |
本文献已被 ScienceDirect 等数据库收录! |
|