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The impact of minimum tick size on the liquidity of the New Zealand stock market

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Dissertation(431.58 KB)

Date

2014

Authors

Supervisor

Frijns, Bart

Item type

Dissertation

Degree name

Master of Business

Journal Title

Journal ISSN

Volume Title

Publisher

Auckland University of Technology

Abstract

This study consider the impact of minimum tick size (MTS) on the liquidity of the New Zealand stock market, where the MTS reduce from $0.01 to $0.005 for 17 stocks in 2011. I analyse stock market liquidity (i.e., spreads and depths) using data from New Zealand stock market. Sometimes, a large MTS would be a binding constraint on the bid ask spread, therefore, large execution cost (Harris, 1994). Asicoglu, Comerton-Forde and McInish (2010) find that there is a significant relationship between MTS and trade size, the number of trades, and price. In my study, I test the binding constraint probability and the relation between the MTS and the stock characteristics. The empirical results show the current MTS is a binding constraint for stocks with price less than $0.20. The trading volume is strongly positive correlated with proportion of spread equal to MTS. However, the relationship with market capitalization is weak.

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Keywords

Minimum tick size, New Zealand stock market, Liqudity

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DOI

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Permanent link

https://hdl.handle.net/10292/7389

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Masters Dissertations