Penny Pricing and the Components of Spread and Depth Changes
Recent studies show that decimal pricing led to significant reductions in the spread and depth on the NYSE. In this paper, we examine how the observed changes in the spread and depth can be attributed to different factors. We show that stocks with higher proportions of one-tick spreads and odd-sixte...
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sg-smu-ink.lkcsb_research-21552021-03-29T01:58:39Z Penny Pricing and the Components of Spread and Depth Changes DING, David K. Chuang, K.H. Chearoenwong, C. Recent studies show that decimal pricing led to significant reductions in the spread and depth on the NYSE. In this paper, we examine how the observed changes in the spread and depth can be attributed to different factors. We show that stocks with higher proportions of one-tick spreads and odd-sixteenth quotes, and more frequent trading before decimalization experienced larger declines in the spread and depth afterwards. We interpret this result as evidence of reduced binding constraints and increased price competition under decimal pricing. We also find that decimal pricing led to nontrivial changes in select stock attributes, and that these changes exerted an additional impact on spreads and depths. Our results suggest that sub-penny pricing may further reduce the spreads of high-volume, low-risk, or low-price stocks. 2004-12-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/1156 info:doi/10.1016/j.jbankfin.2003.11.001 https://ink.library.smu.edu.sg/context/lkcsb_research/article/2155/viewcontent/PennyPricing_2004_av.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Binding constraint tick size stepping ahead spreads depths decimal pricing Business Finance and Financial Management Portfolio and Security Analysis |
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Binding constraint tick size stepping ahead spreads depths decimal pricing Business Finance and Financial Management Portfolio and Security Analysis DING, David K. Chuang, K.H. Chearoenwong, C. Penny Pricing and the Components of Spread and Depth Changes |
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Recent studies show that decimal pricing led to significant reductions in the spread and depth on the NYSE. In this paper, we examine how the observed changes in the spread and depth can be attributed to different factors. We show that stocks with higher proportions of one-tick spreads and odd-sixteenth quotes, and more frequent trading before decimalization experienced larger declines in the spread and depth afterwards. We interpret this result as evidence of reduced binding constraints and increased price competition under decimal pricing. We also find that decimal pricing led to nontrivial changes in select stock attributes, and that these changes exerted an additional impact on spreads and depths. Our results suggest that sub-penny pricing may further reduce the spreads of high-volume, low-risk, or low-price stocks. |
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DING, David K. Chuang, K.H. Chearoenwong, C. |
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DING, David K. Chuang, K.H. Chearoenwong, C. |
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DING, David K. |
title |
Penny Pricing and the Components of Spread and Depth Changes |
title_short |
Penny Pricing and the Components of Spread and Depth Changes |
title_full |
Penny Pricing and the Components of Spread and Depth Changes |
title_fullStr |
Penny Pricing and the Components of Spread and Depth Changes |
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Penny Pricing and the Components of Spread and Depth Changes |
title_sort |
penny pricing and the components of spread and depth changes |
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Institutional Knowledge at Singapore Management University |
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2004 |
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https://ink.library.smu.edu.sg/lkcsb_research/1156 https://ink.library.smu.edu.sg/context/lkcsb_research/article/2155/viewcontent/PennyPricing_2004_av.pdf |
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