Does tick size influence high-frequency herding? Evidence from the Japanese equity market

We investigated high-frequency herding in TOPIX 100 index constituent stocks and examined the effect of tick size on high-frequency herding before and after tick-size reduction. Before the reduction, we found that high-frequency herding exists, and its intensity increases with the extent to which the tick size constrains quoted spreads. High-frequency herding is more pronounced during periods of low market trading volume, market volatility, and idiosyncratic volatility, whereas the effect of the tick size on herding behavior through binding constraints on quoted spreads is stronger during periods of high market trading volume, market volatility, and idiosyncratic volatility. Moreover, herding behavior varies throughout the trading day and initially appears weaker. Following the reduction, high-frequency herding becomes less pronounced, and the effect of tick size on herding behavior diminishes. Notably, the price impact of high-frequency herding tends to reverse over time, suggesting that herding behavior is mainly non-information-driven.