Effect of Minimum Trading Unit on Trading Activity: Evidence from Indonesia Stock Market

Abstract

The purpose of this empirical study is to describe the effect of Minimum Trading Unit (MTU) reduction. Period which is used is from January 2013 to January 2015. MTU applied in Indonesia Stock Exchange (IDX) is different from Tokyo Stock Exchange (TSE) in several ways. This study explains the effect of MTU after introduction during one year. To elaborate the changes, one year is divided to be three periods. The results show that MTU leads to decreasing of trading volume and volatility. However, they are greater in the sample than in overall in composite index. Market capitalization is also rising due to stock price appreciation. Frequency, foreign investor, and value are increasing respectively after application of MTU. Most of reactions upon introduction show positive trend and declining in the end of period. Classification based on price range is used to observe the impact in samples.  Further, there is finding that negative relationship between volatility and price.