Tick Size and Market Quality: Simulations Based on Agent-Based Artificial Stock Markets

This paper investigates the way that minimum tick size affects market quality based on an agent-based artificial stock market. Our results indicate that stepwise and combination systems can promote market quality in certain aspects, compared with a uniform system. A minimal combination system performed the best to improve market quality. This is the first study to analyse tick size systems that remain at the theory stage and compare four types of system under the same experimental environment. The results suggests that a minimal combination system could be considered a new direction for market policy reform to improve market quality.