The Impact of the French Securities Transaction Tax on Market Liquidity and Volatility
Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES)
CEPII, Centre d'Etudes Prospectives et d'Info. Internationales, Paris; Université Paris Ouest - Nanterre, La Défense - EconomiX
April 8, 2013
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 occurring 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 included in DAX and MDAX), analyze dynamic effects or construct a control group by propensity score matching.
Number of Pages in PDF File: 43
Keywords: Financial transaction tax, Securities transaction tax, Tobin tax, Volatility, Liquidity, Financial regulation, Euronext
JEL Classification: G21, H25working papers series
Date posted: January 15, 2014
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