When Does the Tick Size Help or Harm Market Quality? Evidence from the Tick Size Pilot

Authors

• Yashar H. Barardehi, Chapman UniversityFollow
• Peter Dixon, US Securities and Exchange Commission
• Qiyu Liu, US Securities and Exchange Commission
• Ariel Lohr, US Securities and Exchange Commission

Document Type

Article

Publication Date

10-8-2025

Abstract

Tick sizes affect market quality through a tradeoff between pricing fidelity and undercutting. The U.S. Tick Size Pilot (TSP), which raised the minimum tick from 1¢ to 5¢, provides a natural experiment to study this tradeoff. We find that the TSP harmed liquidity for stocks with spreads below 10¢ but improved liquidity for stocks with spreads above 15¢. These opposing effects explain the mixed results across prior studies which pool together stocks with very different prevailing spreads. We recommend researchers using the TSP for causal inference should, at minimum, split samples at 10¢-spreads to account for these heterogeneous liquidity effects.

Comments

This article was originally published in Journal of Financial Markets, volume 78, in 2026. https://doi.org/10.1016/j.finmar.2025.101024

Recommended Citation

Barardehi, Y.H., Dixon, P., Liu, Q., Lohr, A., 2026. When does the tick size help or harm market quality? Evidence from the Tick Size Pilot. J. Financ. Mark. 78, 101024. https://doi.org/10.1016/j.finmar.2025.101024

Peer Reviewed

1

Copyright

The authors

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 License.