TICK SIZE, SPREAD, AND VOLUME

The AMEX changed the tick size from $1/8 to $1/16 for low-price stocks on September 3, 1992. Consistent with the prediction of L. E. Harris (1994, Minimum price variations, discrete bid-ask spreads? and quotati on sizes, Rev. Finan. Stud. 7, 149-178), the change has reduced both q uoted and effective spreads, although the magnitude of the reduction i s much smaller than predicted. However, we fail to find evidence of a significant increase in trading volume. Our cross-sectional regression s show that stocks with greater trading activity, lower prices, and st ronger competition from the regional exchanges experienced greater spr ead reductic,ns. Journal of Economic Literature Classification Numbers : G10, G18, G20. (C) 1996 Academic Press, Inc.