Tick size and price diffusion

A tick size is the smallest increment of a security price. It is clear that at the shortest time scale on which individual orders are placed the tick size has a major role which affects where limit orders can be placed, the bid-ask spread, etc. This is the realm of market microstructure and there is a vast literature on the role of tick size on market microstructure. However, tick size can also affect price properties at longer time scales, and relatively less is known about the effect of tick size on the statistical properties of prices. The present paper is divided in two parts. In the first we review the effect of tick size change on the market microstructure and the diffusion properties…