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Does trading by small investors improve or deteriorate price efficiency? : Evidence from the minimum trade unit changes on the Korea exchange

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  • Does trading by small investors improve or deteriorate price efficiency?
  • Ahn, Hee-joon
  • Multidisciplinary Digital Publishing Institute


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Title Does trading by small investors improve or deteriorate price efficiency?
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Evidence from the minimum trade unit changes on the Korea exchange

Material Type Reports
Author(English)

Ahn, Hee-joon

Publisher

Basel:Multidisciplinary Digital Publishing Institute

Date 2014-04
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Trade
Economy < Direct Investment
Holding Multidisciplinary Digital Publishing Institute

Abstract

: In this study, we investigate the effect of minimum trade unit (MTU) reductions on the Korea Exchange (KRX) on price efficiency. The KRX switched its MTU from 10 shares to one share for high-price stocks twice, once in December 2004 and once in July 2006. The MTU changes were intended to attract small individual investors to the markets for high-price stocks. The MTU reductions on the KRX are different from previous cases of MTU reductions in other markets in that the KRX MTU reductions are not chosen by firms but are mandated by the exchange. Using these rare events, we examine whether the reductions in MTU and ensuing small investor participation enhance or deteriorate price efficiency. We examine three variables as indicators of price efficiency: return volatility, residual volatility, and the half-life of return volatility shock estimated from a generalized autoregressive conditional heteroskedasticity (GARCH) model. (The rest omitted)