Hostname: page-component-78c5997874-mlc7c Total loading time: 0 Render date: 2024-11-15T12:00:38.705Z Has data issue: false hasContentIssue false
  • English
  • Français

The Impact of Minimum Trading Units on Stock Value and Price Volatility

Published online by Cambridge University Press:  06 April 2009

Shmuel Hauser  and
Beni Lauterbach
Shmuel Hauser
Affiliation:
shauser@bgumail.bgu.ac.il, School of Management, Ben-Gurion University of the Negev, PO Box 653, Beer-Sheva 84105, Israel, and School of Business, Rutgers University, 227 Penn St., Camden, NJ 08102;
Beni Lauterbach
Affiliation:
lauteb@mail.biu.ac.il, School of Business Administration, Bar-Ilan University, Ramat Gan 52900, Israel.
Get access Rights & Permissions [Opens in a new window]

Abstract

We study how minimum trading unit changes on the Tel-Aviv Stock Exchange impact a stock's trading activity, price volatility, and value. The value effects are consistent with Merton's (1987) model, i.e., an increase in the investor base (trading volume) and a decrease in price noisiness affect stock value positively. Our results extend Amihud, Mendelson, and Uno's (1999) tests of Merton by demonstrating a clear relation between price noisiness changes and stock value changes, and by showing that the response to a minimum trading unit decrease becomes less favorable (and arguably even negative) in the thinnest trading stocks.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 38 , Issue 3 , September 2003 , pp. 575 - 589
Copyright
Copyright © School of Business Administration, University of Washington 2003

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Amihud, Y.; Mendelson, H.; and Lauterbach, B.. “Market Microstructure and Securities Values: Evidence from the Tel Aviv Stock Exchange.” Journal of Financial Economics, 45 (1997), 365–390.CrossRefGoogle Scholar
Amihud, Y.; Mendelson, H.; and Uno, J.. “Number of Shareholders and Stock Prices: Evidence from Japan.” Journal of Finance, 54 (1999), 1169–1184.CrossRefGoogle Scholar
Black, F. “Noise.” Journal of Finance, 41 (1986), 529–543.CrossRefGoogle Scholar
Blume, M.; MacKinlay, C.; and Terker, B.. “Order Imbalances and Stock Price Movements on October 19 and 20, 1987.” Journal of Finance, 44 (1989), 827–848.Google Scholar
Greenwald, B., and Stein, J.. “The Task Force Report: The Reasoning behind the Recommendations.” Journal of Economic Perspectives, 2 (1988), 3–23.Google Scholar
Kairys, J.; Kruza, R.; and Kumpins, R.. “Winners and Losers from the Introduction of Continuous Variable Price Trading: Evidence from Riga Stock Exchange.” Journal of Banking and Finance, 24 (2000), 603–624.Google Scholar
Kalay, A.; Wei, L.; and Wohl, A.. “Continuous Trading or Call Auctions: Revealed Preferences of Investors at the Tel Aviv Stock Exchange.” Journal of Finance, 57 (2002), 523–542.Google Scholar
Karpoff, J. “The Relation between Price Changes and Trading Volumes: A Survey.” Journal of Financial and Quantitative Analysis, 22 (1987), 109–126.CrossRefGoogle Scholar
Lauterbach, B. “A Note on Trading Mechanism and Securities' Value: The Analysis of Rejects from Continuous Trade.” Journal of Banking and Finance, 25 (2001), 419–430.Google Scholar
Levy, H. “Equilibrium in an Imperfect Market: A Constraint on the Number of Securities in a Portfolio.” American Economic Review, 68 (1978), 643–658.Google Scholar
A., Madhavan “Market Microstructure and Price Formation.” Mimeo, Univ. of Southern California (2000).Google Scholar
Merton, R. “A Simple Model of Capital Market Equilibrium with Incomplete Information.” Journal of Finance, 42 (1987), 483–511.CrossRefGoogle Scholar
Muscarella, C., and Piwowar, M.. “Market Microstructure and Securities Values: Evidence from the Paris Bourse.” Journal of Financial Markets, 4 (2001), 209–229.Google Scholar