Ma. Goldstein et Ka. Kavajecz, Eighths, sixteenths, and market depth: changes in tick size and liquidity provision on the NYSE, J FINAN EC, 56(1), 2000, pp. 125-149
Using limit order data provided by the NYSE, we investigate the impact of r
educing the minimum tick size on the liquidity of the market. While both sp
reads and depths (quoted and on the limit order book) declined after the NY
SE's change from eighths to sixteenths, depth declined throughout the entir
e limit order book as well. The combined effect of smaller spreads and redu
ced cumulative limit order book depth has made liquidity demanders trading
small orders better off; however, traders who submitted larger orders in lo
wer volume stocks did not benefit, especially if those stocks were low pric
ed. (C) 2000 Elsevier Science S.A. All rights reserved. JEL classification:
G14.