A Study on the Effect of Resizing Tick Size on Stock Prices Using the Event Study Method
Abstract
We analyzed the abnormal return (AR) and cumulative abnormal return (CAR) of tick resizing on the Tokyo Stock Exchange in 2014. Tick size is the unit by which price of a stock changes in the stock market. In our study, Phase 1 (P1) was marked for a price range higher than 3001 yen, and Phase 2 (P2) for a price range of 5000 yen or less. AR is the actual return minus the return when the tick size is not changed. CAR is the cumulative value of AR. As a result, in P1, CAR was positive and significant for many days, while in P2, it was negative and had many significant days. In addition, to analyze the difference between P1 and P2, the price range was divided, and the same analysis was repeated. CAR showed no significant negative or positive days in the common price range of 3001 to 5000 yen. However, CAR showed many positive days in the price range higher than 5001 yen in P1 and many negative days in the price range below 3000 yen in P2. These results suggest that the impact of tick resizing may vary significantly depending on the price range.
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