[Seminar] Relative Tick Size and the Trading Environment

Posted: 2016-09-27   Visits: 51

Speaker: Prof. Zhuo Zhong(Assistant Professor, Department of Finance, The University of Melbourne)

Speaker Intro: Prof. Zhuo Zhong's  CV

Host: Prof. Peilin Hsieh

Date: Sep.26,2016(Monday)

Time: 16:40-18:00

Venue: N303, Econ Building

Organizer: Wang Yanan Institute for Studies in Economics & School of Economics 

Description:This paper examines how the relative tick size influences market liquidity  and the biodiversity of trader interactions. Using unique NYSE order-level data,  we find that a larger relative tick size benefits High-Frequency Trading (HFT)  firms that make markets on the NYSE: they leave orders in the book longer, trade  more aggressively, and have higher profit margins. The effects of a larger  relative tick size on the market are more complex. In a one-tick spread  environment, a larger relative tick size results in greater depth and more  volume; in a multi-tick environment, the opposite outcome prevails. The negative  impact on depth and volume in the multi-tick environment is consistent with  greater adverse selection coming from increased undercutting of limit orders by  informed HFT market makers.