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Proceedings of the 2nd Advances in Business Research International Conference pp 145–156Cite as

The Impact of Reducing Tick Size on Malaysian’s Stock Market Liquidity

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Abstract

This paper provides a unique opportunity to investigate the impact reduction in tick size towards Malaysian’s stock market liquidity by utilising spread and trading volume as proxies to market liquidity. The main function of tick size it is a tool to improvise the market liquidity, it is a tool to beautify the market liquidity. Using the components of FTSE-BMKLCI and closing daily data compiled starting from the implementation new tick size regime, from 3 August 2009 until the end of trading day 31 December 2014, this study found that, with the reduction in tick size, it reduces the spread significantly and there is a significant impact on trading volume.

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Notes

  1. 1.

    Harris (2002) found that liquidity derives from different perspectives such as traders need liquidity to encourage them implement inexpensive trading strategies, exchanges need liquidity to fascinate traders to commerce with them and regulators fancy liquidity as the liquid market will produce less volatility.

  2. 2.

    Harris (1997) delineates tick size as minimum price increment at what prices traders use. Meanwhile, Pavabutr and Prangwattananon (2009) define tick size as minimum price changes allowed for stock quotations.

  3. 3.

    Chung et al. (2005) used data compilation from KLSE (Bursa Malaysia) during the years 1996–2001. Facing a data limitation of spreads and depth, they used daily closing bid–ask spread throughout the study. They remarked that this approach will not introduce any biasness in their results as long as the variation in spreads and depth is consistent across the period.

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Author information

Authors and Affiliations

  1. Faculty of Business Management, Universiti Teknologi MARA, Kota Kinabalu, Sabah, Malaysia

    Diana Baharuddin & Imbarine Bujang

  2. Faculty of Business and Management, Universiti Teknologi MARA, Shah Alam, Selangor Darul Ehsan, 40450, Malaysia

    Hamizah Hassan

Authors
  1. Diana Baharuddin
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  2. Imbarine Bujang
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  3. Hamizah Hassan
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Corresponding author

Correspondence to Diana Baharuddin .

Editor information

Editors and Affiliations

  1. University Teknologi MARA , Shah Alam, Malaysia

    Fauziah Noordin

  2. Universiti Teknologi MARA , Shah Alam, Malaysia

    Abdul Kadir Othman

  3. Universiti Teknologi MARA , Shah Alam, Selangor, Malaysia

    Erne Suzila Kassim

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Baharuddin, D., Bujang, I., Hassan, H. (2018). The Impact of Reducing Tick Size on Malaysian’s Stock Market Liquidity. In: Noordin, F., Othman, A., Kassim, E. (eds) Proceedings of the 2nd Advances in Business Research International Conference. Springer, Singapore. https://doi.org/10.1007/978-981-10-6053-3_14

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