Publication Type
Journal Article
Version
acceptedVersion
Publication Date
2004
Abstract
We investigate price rounding before and after the pilot decimalization on the NYSE. We find that although rounding exists in transaction, bid, and ask prices in both the pre- and postdecimalization periods, it becomes less salient after the decimalization. The cross-sectional relationship between rounding and trading variables is similar before and after the decimalization, and so is the relationship between execution costs and rounding when trading variables are held constant. More importantly, the quoted and effective bid–ask spreads decrease after decimal trading, and this decrease can be ascribed to the decrease in rounding frequency after controlling for the changes in trading variables.
Keywords
Price rounding, Bid-ask spreads, Decimalization
Discipline
Business | Finance and Financial Management
Research Areas
Finance
Publication
International Review of Economics and Finance
Volume
13
Issue
1
First Page
19
Last Page
41
ISSN
1059-0560
Identifier
10.1016/s1059-0560(03)00035-2
Publisher
Elsevier
Citation
HE, Yan and WU, Chunchi.
Price Rounding and Bid-Ask Spreads before and after the Decimalization. (2004). International Review of Economics and Finance. 13, (1), 19-41.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/831
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/10.1016/s1059-0560(03)00035-2