Abstract

This study uses intraday data for the Taiwan Stock Exchange to investigate the changes in the order submission behaviors among different types of investors, liquidity supply, and market execution quality after the reduction of tick sizes. As a result, first, order submission behaviors, especially of individuals, become more aggressive by switching from nonmarketable to marketable limit orders. Second, while all investors tend to decrease their limit order sizes, only individual investors and security dealers cancel limit orders more frequently. Additionally, some non-marketable limit orders are placed further away from the best quotes. These changes in the submission strategy of investors inevitably reduce market liquidity supply. Finally, the significant reduction in the transaction cost shows an improvement in the execution quality of marketable limit orders, but no sufficient evidence supports the same conclusion for non-marketable limit orders.