Does trade size restriction affect trading behavior? Evidence from Indian single stock futures market |
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Authors: | Anirban Banerjee Ashok Banerjee |
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Affiliation: | 1. Finance, Accounting and Control Group, Indian Institute of Management Kozhikode, Kozhikode, India;2. Finance and Control Group, Indian Institute of Management Calcutta, Kolkata, India |
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Abstract: | Algorithmic traders use their advantage of speed to execute a large number of small-sized trades in a very short time. In the presence of a minimum trading unit (MTU) restriction, they are forced to trade at the smallest possible sizes, often restricted by the MTU. Using a novel data set of single stock futures market obtained from the National Stock Exchange of India, we show that the MTU restriction acts as a binding constraint for traders while optimizing trade sizes. Contrary to expectation, we find weak evidence that liquidity is positively impacted by the contract size revision. |
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Keywords: | algorithmic trading contract size liquidity minimum trading unit trading volume |
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