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

Gunther Capelle-Blancard

No 1506, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

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 midcaps; 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-indifference 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.

Keywords: Financial transaction tax; Securities transaction tax; Tobin tax; Order-to-trade ratio; High-frequency trading; Liquidity; Volatility; Italian Stock Exchange; Borsa Italiana (search for similar items in EconPapers)
JEL-codes: G21 H25 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repec.unibocconi.it/baffic/baf/papers/cbafwp1506.pdf (application/pdf)

Related works:
Journal Article: Curbing the growth of stock trading? Order-to-trade ratios and financial transaction taxes (2017)
Working Paper: Curbing the Growth of Stock Trading? Order-to-Trade Ratios and Financial Transaction Taxes (2017)
Working Paper: Curbing the Growth of Stock Trading? Order-to-Trade Ratios and Financial Transaction Taxes (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:baf:cbafwp:cbafwp1506

Access Statistics for this paper

More papers in BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy Via Röntgen, 1 - 20136 Milano - Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Michela Pozzi ().