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

  • Gunther Capelle-Blancard

    ()

    (Axe Macroéconomie - CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)

  • Olena Havrylchyk

    ()

    (Université Paris Ouest Nanterre - UP10 - Université Paris 10, 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.

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

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Date of creation: Dec 2013
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Handle: RePEc:hal:cesptp:halshs-00940251
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