The Impact of Minimum Trading Units on Stock Value and Price Volatility

Shmuel Hauser, Beni Lauterbach

Research output: Contribution to journalArticlepeer-review

16 Scopus citations


We study how minimum trading unit changes on the Tel-Aviv Stock Exchange impact a stock's trading activity, price volatility, and value. The value effects are consistent with Merlon's (1987) model, i.e., an increase in the investor base (trading volume) and a decrease in price noisiness affect stock value positively. Our results extend Amihud, Mendelson, and Uno's (1999) tests of Merton by demonstrating a clear relation between price noisiness changes and stock value changes, and by showing that the response to a minimum trading unit decrease becomes less favorable (and arguably even negative) in the thinnest trading stocks.

Original languageEnglish
Pages (from-to)575-589
Number of pages15
JournalJournal of Financial and Quantitative Analysis
Issue number3
StatePublished - Sep 2003


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