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Curbing the Growth of Stock Trading? Order-to-Trade Ratios and Financial Transaction Taxes

Author

Listed:
  • Gunther Capelle-Blancard

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

The growth of financial markets provokes regular debate, particularly in Europe, and in the aftermath of the global crisis a number of reforms have been proposed. In particular, two regulatory measures have been put forward: order-to-trade ratios and transaction taxes. This paper aims to quantify the impact of such initiatives. To do so, I consider market liquidity and volatility in the Italian Stock Exchange (Borsa Italiana) over the 2011-2013 period, which provides a unique opportunity for empirical assessment: first, a penalty for high order-to-trade ratios (OTR) was implemented in April 2012; second, a transaction tax on securities (STT) was introduced in March 2013 on Italian large and mid-caps; third, this tax was extended to derivatives in September 2013 (FTT). No other country has gone so far in terms of financial market regulation. I identify causality via a difference-in-difference approach (with German firms and Italian small caps, when appropriate, as control groups) and a regression discontinuity design. I find that neither the OTR nor the STT/FTT had a meaningful impact on market liquidity or volatility. There was however a substantial drop in OTC trading.

Suggested Citation

  • Gunther Capelle-Blancard, 2017. "Curbing the Growth of Stock Trading? Order-to-Trade Ratios and Financial Transaction Taxes," Post-Print hal-01441828, HAL.
    • Handle: RePEc:hal:journl:hal-01441828
    DOI: 10.1016/j.intfin.2017.02.004
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    Cited by:

    1. Marta Khomyn, 2020. "Essays on Modern Market Structure," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2020, January-A.
    2. Gunther Capelle-Blancard & Avinash Persaud, 2025. "Levies on Equity Transactions to Finance Climate Action," Documents de travail du Centre d'Economie de la Sorbonne 25011, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    3. NIdhi Aggarwal & Venkatesh Panchapagesan & Susan Thomas, 2022. "When is the Order to Trade Ratio fee effective?," Working Papers 8, xKDR.
    4. Aggarwal, Nidhi & Panchapagesan, Venkatesh & Thomas, Susan, 2023. "When is the order-to-trade ratio fee effective?," Journal of Financial Markets, Elsevier, vol. 62(C).
    5. Gunther Capelle-Blancard, 2017. "À quoi servent les (centaines de milliers de milliards de) transactions boursières ?," Revue d'économie financière, Association d'économie financière, vol. 0(3), pages 37-58.
    6. Nidhi Aggarwal & Venkatesh Panchapagesan & Susan Thomas, 2019. "When do regulatory interventions work?," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-011, Indira Gandhi Institute of Development Research, Mumbai, India.
    7. Capelle-Blancard, Gunther & Khemakhem, Emna, 2024. "The impact of the capital gains tax on the Korean derivatives market," Finance Research Letters, Elsevier, vol. 64(C).
    8. Paulo Pereira Silva, 2023. "Securities transaction taxes and stock price informativeness: evidence for France and Italy," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 37(3), pages 325-345, September.
    9. Gunther Capelle-Blancard, 2018. "What is the Point of (the Hundreds of Thousands of Billions of) Stock Transactions?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 60(1), pages 15-33, March.

    More about this item

    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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