Abnormal Return and Tick Size Reduction in Tokyo Stock Exchange

Tick size is minimum price variation which investors quote stock shares in financial market. Purpose of tick size reduction is to improve liquidity. Tokyo Stock Exchange (TSE) reduced twice its tick size in 2014. The first time is called phase 1 (P1). Also, the second time is called phase 2 (P2). In previous study, Amihud showed the relationship between stock return and illiquidity. If stock exchanges improve liquidity due to tick size reduction, there is the possibility that stock return will decrease. But Pachare and Rainer find no impact on abnormal return (AR) and cumulative abnormal return (CAR). So, in this paper, our purpose is to investigate long term AR and CAR. As a result, we got following four results. First, there are some positive and negative AR days in P1. Second, there are some negative AR days in P2. Third, CAR is positive in P1. Fourth, CAR is negative in P2.