Work

Discrete Pricing and Market Fragmentation: A Tale of Two-Sided Markets

Year: 2017

Type: article

Abstract: Security trading now fragments into more than ten almost identical stock exchanges in the United States. We show that discrete pricing is one economic force that prevents the consolidation of trading volume. The uniform one-cent tick size (minimum price variation), imposed by the SEC's Rule 612, leads to more dispersed trading for lower priced securities. When a security reverse splits, its price increases and relative tick size (one cent divided by the price) decreases. We find that reverse splits consolidate trading of securities, using securities with identical underlying fundamentals that do not reverse split as the control group.

Source: American Economic Review

DOI: 10.1257/aer.p20171046

Authors: Yong Chao, Chen Yao, Mao Ye

Institutions: University of Louisville, University of Warwick, University of Illinois Urbana-Champaign

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2581998172

FWCI: 6.441

Cites: 4

Cited by: 34

Related to: 10