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Tick Size, Bid-Ask Spreads, and Market Structure

Published online by Cambridge University Press:  06 April 2009

Roger D. Huang  and
Hans R. Stoll
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Abstract

We propose a link between market structure and the resulting market characteristics—tick size, bid-ask spreads, quote clustering, and market depth. We analyze transactions data of stocks traded on the London Stock Exchange, a dealer market. We conclude that market charateristics are endogenous to the market structure. The London dealer market does not have a mandated tick size, and it exhibits higher spreads, higher quote clusterings, and higher market depth than the NYSE auction market. Clustering of trade prices is similar in London and New York.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 36 , Issue 4 , December 2001 , pp. 503 - 522
Copyright
Copyright © School of Business Administration, University of Washington 2001

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