The Price Effects of Liquidity Shocks: A Study of SEC’s Tick-Size Experiment
Speaker: Dr. Chen Yao (Chinese University of Hong Kong)
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Topic: |
The Price Effects of Liquidity Shocks: A Study of SEC’s Tick-Size Experiment
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Time&Date: |
10:30am-12:00pm, 2018/3/23 |
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Venue : |
Room A619, Teaching A |
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Speaker: |
Dr. Chen Yao (Chinese University of Hong Kong) |
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Detail: |
This paper studies the SEC’s pilot program that increased the tick size for approximately 1,200 randomly chosen stocks. We provide causal evidence of a negative impact of a larger tick size on stock prices equivalent to roughly $7 billion investor loss. We investigate direct and indirect effects of the tick size change on stock prices. We find that treated stocks experience a reduction in liquidity, but find no significant change in liquidity risk. Test stocks experience a decline in price efficiency consistent with an increase in information risk. The evidence suggests that trading frictions affect the cost of capital.
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