Liquidity and Quote Clustering in a Market with Multiple Tick Sizes

25 Pages Posted: 4 May 2004

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Kenneth Kim

Tongji University - School of Economics and Management; SUNY at Buffalo - School of Management

Pattanaporn Chatjuthamard

Sasin GIBA

Abstract

We analyze market liquidity (i.e., spreads and depths) and quote clustering using data from the Kuala Lumpur Stock Exchange (KLSE), where the tick size increases with share price in a stepwise fashion. We find that stocks that are subject to larger mandatory tick sizes have wider spreads and less quote clustering. We also find that liquidity providers on the KLSE do not always quote larger depths for stocks with larger tick sizes. Overall, our results suggest that larger tick sizes for higher priced stocks are detrimental to market liquidity, although the adverse effect of larger tick sizes is mitigated by lower negotiation costs (i.e., less quote clustering).

Keywords: tick size, liquidity, spread, depth, quote clustering

JEL Classification: G18, G19

Suggested Citation

Chung, Kee H. and Kim, Kenneth A. and Chatjuthamard, Pattanaporn, Liquidity and Quote Clustering in a Market with Multiple Tick Sizes. Journal of Financial Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=539762

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Kenneth A. Kim

Tongji University - School of Economics and Management ( email )

Siping Road 1500
Shanghai, Shanghai 200092
China

SUNY at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

Pattanaporn Chatjuthamard

Sasin GIBA ( email )

Bangkok
Thailand

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