Do Investors Avoid Odd-Eighth Prices? Evidence from NYSE Limit Orders

We examine a large sample of electronically placed limit orders on NYSE stocks to investigate (1) what limit prices investors choose, (2) the relation between investor limit prices and stock quotes, and (3) limit order execution rates. We find that both individual and institutional investors exhibit a preference for even-eighth prices when they submit limit orders to buy and sell NYSE stocks. Clustering on even prices is a positive function of the firm?s stock rice and return volatility. Analysis of quote prices show there is a positive relation between the percentage of even-eighth limit orders and the percentage of even-eighth quotes. In addition, quoted depth is significantly higher for even-eighth quotes than for odd-eighth quotes. After decomposing the depth into the portions provided by the specialist and limit order investors, we find that both provide additional depth when the quote is even. Despite the fact that there are a greater number of even-eighth limit orders and greater depth at even quotes, the proportion of executing limit orders submitted with even-eighth prices is similar to those submitted with odd-eighth prices. Therefore, this pricing decision by investors does not appear to have a detrimental impact on limit order execution rates