Long-run Effects of Minimum Trading Unit Reductions on Stock Prices


  • The author would like to thank the Issue Editor, Sheridan Titman, Matthias Hanauer (discussant), Sudipto Dasgupta, Wataru Ohta, Seiichiro Iwasawa, Kentaro Iwatsubo, Stephen Sears, Tosio Serita, Ken-ichi Tatsumi, Masahiro Watanabe, Kuo-Chiang Wei, participants at the IRF conference on Japanese Financial Markets: Corporate Finance, Institutions, and Investments, the 2013 Conference of the Southwestern Finance Association and the 2013 meeting of the Nippon Finance Association, and seminar participants at Osaka University. The authors would also like to acknowledge the financial assistance of a Grant-in-Aid for Scientists (B) (No. 20730221) from the Ministry of Education, Culture, Sports, Science and Technology, Japan.


We examine empirically the long-run effects of reductions in minimum trading units (MTU) on stock prices in Japan from October 2001 to May 2008. When firms reduce their MTU, the number of individual shareholders tends to increase significantly for several years. We estimate buy-and-hold abnormal returns and find that positive stock returns are observed not only for the period between the announcement day and the actual date of MTU decreases, but also for a period of several years following MTU reductions. In addition, we measure stock price reactions to the release of public information before and after MTU reductions and find that stock prices react less to the release of positive information and more to the release of negative information after the MTU reductions. These findings, together with evidence of the change in the short and long positions of investors after the MTU reductions, indicate that individual investors face short-sales constraints.