The information content of the thinner order book following tick size reduction: Evidence from the Taiwan Stock Exchange

Abstract

Purpose

This paper aims to examine the impact of a reduction in tick size on the information content of the order book by using data from the Taiwan Stock Exchange (TWSE).

Design/methodology/approach

To estimate the information content of the order book, the modified information share proposed by Hasbrouck and extended by Lien and Shrestha is used in this paper.

Findings

The empirical results show that the limit order book is informative. Furthermore, the results indicate that a reduction in tick size will decrease the information content of the order book and the decrease in the information content of the order book is positively related to the thinner order book.

Originality/value

This paper suggests that, in order to enhance the information content of the order book, the TWSE should disclose the full limit order book.

Citation

Chien, C.-Y., Liao, T.-H. and Lee, H.-C. (2014), "The information content of the thinner order book following tick size reduction: Evidence from the Taiwan Stock Exchange", Managerial Finance, Vol. 40 No. 3, pp. 218-233. https://doi.org/10.1108/MF-11-2012-0238