Tick Size Pilot Plan Threshold Analysis
March 6, 2019
Edwin Hu, Paul Hughes, John Ritter, Patti Vegella, and Hao Zhang
Abstract
This paper examines how the effects of the Tick Size Pilot vary with different stock characteristics in order to try and identify thresholds above or below which stocks experience improvements in market quality, including price discovery. We focus on three measures of market quality: the effective spread, variance ratios, and displayed limit order book depth. We match Test Group stocks to Control Group stocks based on the following pre-Pilot characteristics: quoted spreads, market capitalization, trading volume, price, limit order book depth, and volatility. We do not find clusters of stocks which systematically experienced improvements in market quality. Few stocks experience improvements in market quality and these stocks are not clearly identifiable based on pre-Pilot characteristics.