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- Title
Lot Size Constraints and Market Quality: Evidence from the Borsa Italiana.
- Authors
Gozluklu, Arie E.; Perotti, Pietro; Rindi, Barbara; Fredella, Roberta
- Abstract
Trading venues often impose a minimum lot size (minimum trade unit [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.
- Subjects
ECONOMIC lot size; BORSA Italiana SpA; ADVERSE selection (Commerce); LIQUIDITY (Economics); INFORMATION asymmetry
- Publication
Financial Management (Wiley-Blackwell), 2015, Vol 44, Issue 4, p905
- ISSN
0046-3892
- Publication type
Article
- DOI
10.1111/fima.12105