재무연구 제 권 호 (2007년 4월)
Asian Review of Financial Research, Vol., No..
pp.2034~2071
pp.2034~2071
Tick size, market structure, and trading costs
Kee H. Chung Department of Finance and Managerial Economics, State University of New York (SUNY) at Buffalo, Buffalo, NY 14260, USA
Jangkoo Kang Graduate School of Finance, Korea Advanced Institute of Science and Technology, Chungnyangni-dong, Dongdaemoon-gu, Seoul, Korea
Joon-Seok Kim Graduate School of Finance, Korea Advanced Institute of Science and Technology, Chungnyangni-dong, Dongdaemoon-gu, Seoul, Korea
Large tick sizes imposed on high-price stocks on the Korea Stock Exchange (KSE) are significant binding constraints on bid-ask spreads. Nearly 60% of quoted spreads are equal to the tick size for stocks with the largest tick size. The average spread of KSE stocks is smaller than that of the matched sample of New York Stock Exchange (NYSE) stocks, although the average spread of KSE stocks that belong to larger tick size groups is greater than that of matched NYSE stocks. These results suggest that the KSE’s electronic limit order market provides cheaper executions than the NYSE’s specialist system for our matched sample of stocks, and the KSE could further reduce trading costs if the large tick sizes imposed on highprice stocks are replaced with smaller ones.
Kee H. Chung
Jangkoo Kang
Joon-Seok Kim
Large tick sizes imposed on high-price stocks on the Korea Stock Exchange (KSE) are significant binding constraints on bid-ask spreads. Nearly 60% of quoted spreads are equal to the tick size for stocks with the largest tick size. The average spread of KSE stocks is smaller than that of the matched sample of New York Stock Exchange (NYSE) stocks, although the average spread of KSE stocks that belong to larger tick size groups is greater than that of matched NYSE stocks. These results suggest that the KSE’s electronic limit order market provides cheaper executions than the NYSE’s specialist system for our matched sample of stocks, and the KSE could further reduce trading costs if the large tick sizes imposed on highprice stocks are replaced with smaller ones.
