The lower the better? Revisiting minimum tick size

We analyse the impact on liquidity of a reduction of the minimum tick size to sub-cent levels at the Vienna Stock Exchange. We find no effect, even after controlling for the extent to which stocks were constrained by the pre-change tick size. Our results imply that regulator-imposed lower bounds on the tick size are not necessarily harmful, and they fail to confirm the existence of a u-shaped relation between tick size and illiquidity as predicted by theoretical models.