Finance Research Seminar – Professor Tarun Chordia
Date: Wednesday 19 February 2025 | Time: 14:00 to 15:00
Location: Frederick Douglass Centre, Room 1.17
The Finance research group welcomes Professor Tarun Chordia from Emory University.
He will present his work, entitled "True Liquidity and Fundamental Prices: US Tick Size Pilot."
About the speaker
Professor Tarun Chordia is the R. Howard Dobbs, Jr. Chaired Professor of Finance at Emory University. He holds a PhD from UCLA and has published extensively in top finance journals on empirical asset pricing and market microstructure. He has served as Managing Editor of the Journal of Financial Markets and has received multiple research awards.
Research abstract
We develop a big data methodology to estimate true stock prices and liquidity, explicitly accounting for rounding effects from the minimum tick size. Applying this approach to the tick size pilot (TSP), which increased tick size for randomly selected stocks, we find that the TSP boosts market-maker profits but does not enhance liquidity. This result aligns with theoretical predictions but contrasts with prior empirical studies. Our rounding-adjusted liquidity measures, unlike traditional metrics, capture TSP-induced trading restrictions and reduced inventory holdings of market-makers and exhibit less dispersion across exchanges, thus validating our methodology and the accuracy of our refined liquidity measures.