Fractional versus decimal pricing: Evidence from the UK long gilt futures market
Fractional versus decimal pricing: Evidence from the UK long gilt futures market
This paper analyses the impact of a move from fractional to decimal pricing in the UK Long Gilt futures market. The reduced tick size following decimalisation leads to an increase in price clustering. The bid-ask spread, measured in ticks, increases following the tick size reduction. However, due to a reduced tick value, the monetary value of the spread declines.
There is a substantial reduction in mean trade size as reduced-depth orders become trades. The mean daily number of transactions increases, which is entirely consistent with increased volume and decreased mean trade size. The finer price grid does not result in higher price volatility.
decimalisation, tick size, price clustering, bid-ask spreads, trade size
419-442
Ap Gwilym, Owain
dbd356d9-b22d-420b-a980-7341f6d52f34
McManus, Ian D.
4e32d128-f390-426b-9bc6-dbef9e8f19bc
Thomas, Stephen
3ebf2346-25f1-4f19-b854-7a7da0cee9ca
2005
Ap Gwilym, Owain
dbd356d9-b22d-420b-a980-7341f6d52f34
McManus, Ian D.
4e32d128-f390-426b-9bc6-dbef9e8f19bc
Thomas, Stephen
3ebf2346-25f1-4f19-b854-7a7da0cee9ca
Ap Gwilym, Owain, McManus, Ian D. and Thomas, Stephen
(2005)
Fractional versus decimal pricing: Evidence from the UK long gilt futures market.
Journal of Futures Markets, 25 (5), .
(doi:10.1002/fut.20149).
Abstract
This paper analyses the impact of a move from fractional to decimal pricing in the UK Long Gilt futures market. The reduced tick size following decimalisation leads to an increase in price clustering. The bid-ask spread, measured in ticks, increases following the tick size reduction. However, due to a reduced tick value, the monetary value of the spread declines.
There is a substantial reduction in mean trade size as reduced-depth orders become trades. The mean daily number of transactions increases, which is entirely consistent with increased volume and decreased mean trade size. The finer price grid does not result in higher price volatility.
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Published date: 2005
Keywords:
decimalisation, tick size, price clustering, bid-ask spreads, trade size
Identifiers
Local EPrints ID: 36389
URI: http://eprints.soton.ac.uk/id/eprint/36389
ISSN: 0270-7314
PURE UUID: a190606c-dc64-424d-98a4-b537eaa8fcf4
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Date deposited: 22 May 2006
Last modified: 15 Mar 2024 07:56
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Author:
Owain Ap Gwilym
Author:
Ian D. McManus
Author:
Stephen Thomas
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