Securities Transaction Tax and Market Quality – The Case of France

EFMA 2013 Meetings (Reading)

40th EFA Annual Meeting (Cambridge)

SFA Meetings 2013, (Fajardo)

39 Pages Posted: 25 Apr 2013 Last revised: 24 Nov 2013

See all articles by Martin Haferkorn

Martin Haferkorn

Goethe University Frankfurt Faculty of Economics and Business Administration

Kai Zimmermann

Goethe University Frankfurt Faculty of Economics and Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: January 4, 2013

Abstract

The French Securities Transaction Tax (also referred as French Tobin Tax) implementation on August 1st, 2012, is considered a landmark development within financial markets regulation. However, until today the controversy about possible drawbacks and applicability of a Securities Transaction Tax (STT) has not reached a conclusion and consequences for market quality and market efficiency are yet to be thoroughly assessed. In this light a rigorous assessment on the STT’s effect on market quality and market efficiency is highly desirable as it provides guidance for academics, regulators and practitioners alike. On the basis of a comparison of the French CAC40 with the German DAX, we provide evidence that trading volume significantly drops after the introduction of the STT. Even though the French proposal exempts professional liquidity providing activities, we find increased spreads and a strong decline in top order book depth resulting in additional costs for market participants beside the transaction tax. Most alerting, as the tax affects trading on all French listing venues, we find this deterioration in market efficiency threatening inter-market information transmission by impairing price coordination among the European fragmented markets.

Keywords: Securities Transaction Tax, Financial Transaction Tax, Financial Markets Regulation, Europe, France, Liquidity, Volatility, Trading Volume, Market Efficiency

JEL Classification: G12, G14, G18, G28

Suggested Citation

Haferkorn, Martin and Zimmermann, Kai, Securities Transaction Tax and Market Quality – The Case of France (January 4, 2013). EFMA 2013 Meetings (Reading); SFA Meetings 2013, (Fajardo). Available at SSRN: https://ssrn.com/abstract=2229221

Martin Haferkorn (Contact Author)

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 4
Frankfurt am Main, 60323
Germany

Kai Zimmermann

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
412
rank
68,877
Abstract Views
2,107
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information