IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

The Impact of the French Securities Transaction Tax on Market Liquidity and Volatility

Listed author(s):
  • Gunther Capelle-Blancard

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

  • Olena Havrylchyk

    ()

    (UPOND - Université Paris Ouest Nanterre La Défense, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)

In this paper, we assess the impact of the securities transaction tax (STT) introduced in France in 2012 on market liquidity and volatility. To identify causality, we rely on the unique design of this tax that is imposed only on large French firms, all listed on Euronext. This provides two reliable control groups (smaller French firms and foreign firms also listed on Euronext) and allows using difference-in-difference methodology to isolate the impact of the tax from other economic changes occuring simultaneously. We find that the STT has reduced trading volume, but we find no effect on theoretically based measures of liquidity, such as price impact, and no significant effect on volatility. The results are robust if we rely on different control groups (German stocks), analyze dynamic effects or construct a control group by propensity score matching.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://halshs.archives-ouvertes.fr/halshs-00940251/document
Download Restriction: no

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00940251.

as
in new window

Length:
Date of creation: Dec 2013
Publication status: Published in Documents de travail du Centre d'Economie de la Sorbonne 2013.85 - ISSN : 1955-611X. 2013
Handle: RePEc:hal:cesptp:halshs-00940251
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00940251
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Summers, L.H. & Summers, V.P., 1989. "When Financial Markets Work Too Well : A Cautious Case For A Securities Transactions Tax," Papers t12, Columbia - Center for Futures Markets.
  2. Lubos Pastor & Robert F. Stambaugh, 2001. "Liquidity Risk and Expected Stock Returns," NBER Working Papers 8462, National Bureau of Economic Research, Inc.
  3. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
  4. Stephan Meyer & Martin Wagener & Christof Weinhardt, 2015. "Politically Motivated Taxes in Financial Markets: The Case of the French Financial Transaction Tax," Journal of Financial Services Research, Springer;Western Finance Association, vol. 47(2), pages 177-202, April.
  5. Eichengreen, Barry & Tobin, James & Wyplosz, Charles, 1994. "Two Cases for Sand in the Wheels of International Finance," Center for International and Development Economics Research (CIDER) Working Papers 233396, University of California-Berkeley, Department of Economics.
  6. Yuming Fu & Wenlan Qian & Bernard Yeung, 2013. "Speculative Investors and Tobin's Tax in the Housing Market," NBER Working Papers 19400, National Bureau of Economic Research, Inc.
  7. G. Ehrenstein & F. Westerhoff & D. Stauffer, 2005. "Tobin tax and market depth," Quantitative Finance, Taylor & Francis Journals, vol. 5(2), pages 213-218.
  8. Robert F. Engle & Giampiero M. Gallo, 2003. "A Multiple Indicators Model for Volatility Using Intra-Daily Data," NBER Working Papers 10117, National Bureau of Economic Research, Inc.
  9. Michael W. Brandt & Francis X. Diebold, 2001. "A No-Arbitrage Approach to Range-Based Estimation of Return Covariances and Correlations," PIER Working Paper Archive 03-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Apr 2003.
  10. Yung-Shi Liau & Yi-Chen Wu & Hsinan Hsu, 2012. "Transaction tax and market volatility: Evidence from the Taiwan futures market," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 2(2), pages 1-3.
  11. Giovanni Cespa & Thierry Focault, 2011. "Learning from Prices, Liquidity Spillovers, and Market Segmentation," CSEF Working Papers 284, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  12. James Tobin, 1978. "A Proposal for International Monetary Reform," Eastern Economic Journal, Eastern Economic Association, vol. 4(3-4), pages 153-159, Jul/Oct.
  13. Dupont, Dominique Y. & Lee, Gabriel S., 2003. "Effects of Securities Transaction Taxes on Depth and Bid-Ask Spread," Economics Series 132, Institute for Advanced Studies.
  14. Leonardo Becchetti & Massimo Ferrari & Ugo Trenta, 2013. "The impact of the French Tobin tax," CEIS Research Paper 266, Tor Vergata University, CEIS, revised 01 Mar 2013.
  15. Thierry Foucault & David Thesmar & David Sraer, 2008. "Individual Investors and Volatility," Working Papers hal-00578370, HAL.
  16. Parkinson, Michael, 1980. "The Extreme Value Method for Estimating the Variance of the Rate of Return," The Journal of Business, University of Chicago Press, vol. 53(1), pages 61-65, January.
  17. Pierre-Cyrille Hautcoeur & Angelo Riva, 2012. "The Paris financial market in the nineteenth century: complementarities and competition in microstructures," Economic History Review, Economic History Society, vol. 65(4), pages 1326-1353, November.
  18. Gunther Capelle-Blancard, 2016. "The abrogation of the “Impôt sur les opérations de bourse” did not foster the French stock market," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01297093, HAL.
  19. Alexandros Gabrielsen & Massimiliano Marzo & Paolo Zagaglia, 2011. "Measuring market liquidity: An introductory survey," Papers 1112.6169, arXiv.org.
  20. Kate Phylaktis & Antonis Aristidou, 2007. "Security transaction taxes and financial volatility: Athens stock exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 17(18), pages 1455-1467.
  21. Robert Bloomfield & Maureen O'Hara & Gideon Saar, 2009. "How Noise Trading Affects Markets: An Experimental Analysis," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2275-2302, June.
  22. Carole Comerton-Forde & Terrence Hendershott & Charles M. Jones & Pamela C. Moulton & Mark S. Seasholes, 2010. "Time Variation in Liquidity: The Role of Market-Maker Inventories and Revenues," Journal of Finance, American Finance Association, vol. 65(1), pages 295-331, 02.
  23. Thornton Matheson, 2011. "Taxing Financial Transactions; Issues and Evidence," IMF Working Papers 11/54, International Monetary Fund.
  24. John Y. Campbell & Sanford J. Grossman & Jiang Wang, 1993. "Trading Volume and Serial Correlation in Stock Returns," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 905-939.
  25. Robin K. Chou & George H. K. Wang, 2006. "Transaction tax and market quality of the Taiwan stock index futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 26(12), pages 1195-1216, December.
  26. Robert Pollin & James Heintz, 2011. "Transaction Costs, Trading Elasticities and the Revenue Potential of Financial Transaction Taxes for the United States," Research Briefs peri_ftt_research_brief, Political Economy Research Institute, University of Massachusetts at Amherst.
  27. Badi Baltagi & Dong Li & Qi Li, 2006. "Transaction tax and stock market behavior: evidence from an emerging market," Empirical Economics, Springer, vol. 31(2), pages 393-408, June.
  28. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
  29. Subrahmanyam, Avanidhar, 1998. "Transaction Taxes and Financial Market Equilibrium," The Journal of Business, University of Chicago Press, vol. 71(1), pages 81-118, January.
  30. Stiglitz, J.E., 1989. "Using Tax Policy To Curb Speculative Short-Term Trading," Papers t2, Columbia - Center for Futures Markets.
  31. Roll, R., 1989. "Price Volatility, International Market Links, And Their Implications For Regulatory Policies," Papers t10, Columbia - Center for Futures Markets.
  32. Frank M. Song & Junxi Zhang, 2005. "Securities Transaction Tax and Market Volatility," Economic Journal, Royal Economic Society, vol. 115(506), pages 1103-1120, October.
  33. Tonny Lybek & Abdourahmane Sarr, 2002. "Measuring Liquidity in Financial Markets," IMF Working Papers 02/232, International Monetary Fund.
  34. Roll, Richard, 1984. " A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market," Journal of Finance, American Finance Association, vol. 39(4), pages 1127-1139, September.
  35. Cespa, Giovanni & Foucault, Thierry, 2011. "Learning from Prices, Liquidity Spillovers, and Market Segmentation," CEPR Discussion Papers 8350, C.E.P.R. Discussion Papers.
  36. Shinhua Liu, 2007. "Securities Transaction Tax and Market Efficiency: Evidence from the Japanese Experience," Journal of Financial Services Research, Springer;Western Finance Association, vol. 32(3), pages 161-176, December.
  37. Anna Pomeranets & Daniel G. Weaver, 2011. "Security Transaction Taxes and Market Quality," Staff Working Papers 11-26, Bank of Canada.
  38. Hau, Harald, 2002. "The Role of Transaction Costs for Financial Volatility: Evidence from the Paris Bourse," CEPR Discussion Papers 3651, C.E.P.R. Discussion Papers.
  39. Jones, Charles M & Seguin, Paul J, 1997. "Transaction Costs and Price Volatility: Evidence from Commission Deregulation," American Economic Review, American Economic Association, vol. 87(4), pages 728-737, September.
  40. Victoria Saporta & Kamhon Kan, 1997. "The effects of Stamp Duty on the Level and Volatility of Equity Prices," Bank of England working papers 71, Bank of England.
  41. Markus Haberer, 2004. "Might a Securities Transactions Tax Mitigate Excess Volatility?: Some Evidence From the Literature," CoFE Discussion Paper 04-06, Center of Finance and Econometrics, University of Konstanz.
  42. Hau, Harald, 1998. "Competitive Entry and Endogenous Risk in the Foreign Exchange Market," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 757-787.
  43. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
  44. Umlauf, Steven R., 1993. "Transaction taxes and the behavior of the Swedish stock market," Journal of Financial Economics, Elsevier, vol. 33(2), pages 227-240, April.
  45. Hu, Shing-yang, 1998. "The effects of the stock transaction tax on the stock market - Experiences from Asian markets," Pacific-Basin Finance Journal, Elsevier, vol. 6(3-4), pages 347-364, August.
  46. Mannaro, Katiuscia & Marchesi, Michele & Setzu, Alessio, 2008. "Using an artificial financial market for assessing the impact of Tobin-like transaction taxes," Journal of Economic Behavior & Organization, Elsevier, vol. 67(2), pages 445-462, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:halshs-00940251. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.