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The Price E?ects of Liquidity Shocks: A Study of SEC’s Tick-Size Experiment

  • 2018.03.16
  • Event
Speaker: Dr. Chen Yao (Chinese University of Hong Kong)

Topic:

?? The Price E?ects of Liquidity Shocks: A Study of SEC’s Tick-Size Experiment
?

Time&Date:?

?10:30am-12:00pm, 2018/3/23

Venue :

? Room A619, Teaching A

Speaker:?

? Dr. Chen Yao (Chinese University of Hong Kong)

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 e?ects of the tick size change on stock prices. We ?nd that treated stocks experience a reduction in liquidity, but ?nd no signi?cant change in liquidity risk. Test stocks experience a decline in price e?ciency consistent with an increase in information risk. The evidence suggests that trading frictions a?ect the cost of capital.

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