Abstract
We formulate a measure of information efficiency in a general, no-arbitrage semimartingale model of the price process. The market quality measure is applied to a high-frequency dataset from the interdealer FX market to identify changes in market efficiency after a decimalization of tick size.
Highlights
IntroductionJournal of Risk and Financial Management 15: 97
We considered two standard measures of adverse selection—realized and effective spreads—before and after tick size change
This suggests that manual traders price-clustered at pre-decimalized levels and effectively conceded the top of the limit order book to high-frequency traders 70% of the time
Summary
Journal of Risk and Financial Management 15: 97. Academic Editors: Joanna Olbryś and Mark Harris. Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations.
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