11. Decimalization and Discreteness

  1. H. Kent Baker and
  2. Halil Kiymaz
  1. Brittany Cole1 and
  2. Bonnie Van Ness2

Published Online: 23 AUG 2013

DOI: 10.1002/9781118681145.ch11

Market Microstructure in Emerging and Developed Markets: Price Discovery, Information Flows, and Transaction Costs

Market Microstructure in Emerging and Developed Markets: Price Discovery, Information Flows, and Transaction Costs

How to Cite

Cole, B. and Ness, B. V. (2013) Decimalization and Discreteness, in Market Microstructure in Emerging and Developed Markets: Price Discovery, Information Flows, and Transaction Costs (eds H. K. Baker and H. Kiymaz), John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118681145.ch11

Author Information

  1. 1

    PhD Student, University of Mississippi

  2. 2

    Department Chair and Professor of Finance, University of Mississippi

Publication History

  1. Published Online: 23 AUG 2013
  2. Published Print: 16 AUG 2013

ISBN Information

Print ISBN: 9781118278444

Online ISBN: 9781118681145

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Keywords:

  • decimalization;
  • tick size;
  • price discreteness;
  • liquidity;
  • price clustering;
  • clustering;
  • minimum price variation.

Summary

Financial assets are generally priced according to a discrete price set. Many markets set minimum price variations or tick sizes for quoting and trading assets in that market. The prices of equities in U.S. markets were originally quoted in increments of eighths of one dollar. In 1997, the United States lowered the minimum tick size to one sixteenth and then lowered the tick size to pennies or decimals in 2001. Financial markets in other countries have also undergone similar tick size changes. The finance literature shows that these tick size changes can have strong impacts on market quality, trader behavior, and market-maker behavior.