Publication Type
Journal Article
Publication Date
3-2005
Abstract
We examine the composition of return volatility, serial correlation, and trading costs before and after decimalization on the New York Stock Exchange. We decompose the variance of price changes into components associated with public news, rounding errors, and market-making frictions. We find that when stocks move from a fractional to a decimal trading system, the variance components due to market-making frictions and rounding errors decline significantly, whereas the component due to public news remains unchanged. The serial correlation of price changes weakens substantially after decimalization. The uninformed component of bid-ask spreads decreases significantly whereas the informed component has no significant change.
Discipline
Business | Finance and Financial Management
Research Areas
Finance
Publication
Journal of Finanical Research
Volume
28
Issue
1
First Page
77
Last Page
96
ISSN
1040-2446
Identifier
10.1111/j.1475-6803.2005.00115.x
Publisher
Wiley
Citation
HE, Yan and WU, Chunchi.
The Effects of Decimalization on Return Volatility Components, Serial Correlation and Trading Costs. (2005). Journal of Finanical Research. 28, (1), 77-96.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/788
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1111/j.1475-6803.2005.00115.x