Abstract
I assess the impact of increasing the tick size on stock liquidity and trading volume in illiquid stocks. Using a regression discontinuity design at the Oslo Stock Exchange, I find that increasing the tick size has no impact on the transaction costs, order book depths, or trading volumes of illiquid stocks. These findings contradict recent theoretical predictions in the market microstructure literature as well as proposals by lawmakers in the United States to increase the tick size for illiquid stocks.
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