ANALYSIS THE EFFECT OF TICK SIZE SIMPLIFICATION TO TRADE AND STOCK RETURN IN INDONESIA STOCK EXCHANGE

Abstract

On January 6, 2014 Indonesia Stock Exchange simplifying tick size. The purpose of these changes is to improve liquidity and lower volatility. But the fact in 2014 the total volume of transactions fell by 1.16% and the value of transactions fell by 4.52%. Reaction pros and cons, decreased trading volumes and still diverse results obtained from previous studies to make research on the effect of changes in the tick size becomes attractive. Tick size is one of the components of the market microstructure. Market microstructure theory is the study of how information is summarized in the price of securities markets through trading activity and how regulations affect the efficiency of market institutions on security prices. Results of this study indicate a significant influence on the change in tick size to variable bid ask spread, depth and volume. Tick size change does not affect the stock price volatility. Market microstructure between variables also showed a relationship of mutual influence. GARCH analysis results showed issuer in LQ45 quickly absorb information. Found positive results due to changes in the fraction of the stock price on the sample LQ45. Changes in the tick size increase liquidity and does not affect volaitlitas. While the liquidity and volatility affect stock returns. It can be deduced changes in the tick size indirectly affect the stock return.