Does Tick Size Matter?: Evidence from the Stockholm Stock Exchange

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On September 25th, 2006, OMX changed the minimum price increment, i.e. tick size on a number of stocks traded at the Stockholm Stock Exchange (SSE). Previous research has shown that different market participants have different views on what constitutes an optimal tick size. We investigate what impact this particular tick size reduction has on parameters affecting market quality; i.e. the components of liquidity supply and intraday volatility. Consistent with previous studies, we find that for high volume stocks a reduced minimum tick size results in an improvement in market quality. For low volume stocks, the effects are not as strong as for the high volume stocks. The overall impact on the Stockholm Stock Exchange following this tick size reduction is positive, thus this tick size ...