The impact of minimum tick size on the liquidity of the New Zealand stock market
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This study consider the impact of minimum tick size (MTS) on the liquidity of the New Zealand stock market, where the MTS reduce from $0.01 to $0.005 for 17 stocks in 2011. I analyse stock market liquidity (i.e., spreads and depths) using data from New Zealand stock market. Sometimes, a large MTS would be a binding constraint on the bid ask spread, therefore, large execution cost (Harris, 1994). Asicoglu, Comerton-Forde and McInish (2010) find that there is a significant relationship between MTS and trade size, the number of trades, and price. In my study, I test the binding constraint probability and the relation between the MTS and the stock characteristics. The empirical results show the current MTS is a binding constraint for stocks with price less than $0.20. The trading volume is strongly positive correlated with proportion of spread equal to MTS. However, the relationship with market capitalization is weak.