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Lot size constraints and market quality : evidence from the Borsa Italiana
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Gozluklu, Arie E., Perotti, Pietro, Rindi, Barbara and Fredella, Roberta (2015) Lot size constraints and market quality : evidence from the Borsa Italiana. Financial Management, 44 (4). pp. 905-945. doi:10.1111/fima.12105 ISSN 0046-3892.
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Official URL: http://dx.doi.org/10.1111/fima.12105
Abstract
Trading venues often impose a minimum lot size (minimum trade unit or MTU) to facilitate order execution. We document changes in market quality associated with the reduction of the MTU to one share on the Italian stock exchange, the Borsa Italiana. We observe a substantial improvement in liquidity, with an average decrease in the relative spread of 10.2%, and more significant improvements for those firms for which the MTU constraint was more binding. We also show that the improvement in liquidity is mainly driven by a reduction in adverse selection; that informational efficiency is not significantly affected; and there is an increase in retail trading. We interpret our findings in light of a model of asymmetric information in which the MTU affects traders’ choice of order size.
Item Type: | Journal Article | ||||||
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Subjects: | H Social Sciences > HG Finance | ||||||
Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Stock exchanges -- Italy | ||||||
Journal or Publication Title: | Financial Management | ||||||
Publisher: | Wiley-Blackwell Publishing, Inc. | ||||||
ISSN: | 0046-3892 | ||||||
Official Date: | 2015 | ||||||
Dates: |
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Volume: | 44 | ||||||
Number: | 4 | ||||||
Page Range: | pp. 905-945 | ||||||
DOI: | 10.1111/fima.12105 | ||||||
Status: | Peer Reviewed | ||||||
Publication Status: | Published | ||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||
Funder: | Università commerciale Luigi Bocconi |
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