The impact of financial transaction taxes on stock markets: Short-run effects, long-run effects, and reallocation of trading activity

Sebastian Eichfelder, Mona Noack and Felix Noth

No 12/2022, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: We investigate the impact of the French 2012 financial transaction tax on trading activity, volatility, and price efficiency measured by first-order autocorrelation. We extend empirical research by analysing anticipation and reallocation effects. In addition, we consider measures for long-run volatility and first-order autocorrelation that have not been explored yet. We find robust evidence for anticipation effects before the effective date of the French FTT. Controlling for short-run effects, we only find weak evidence for a long-run reduction of trading activity due to the French FTT. Thus, the main impact of the French FTT on trading activity is short-run. We find stronger reactions of low-liquidity treated stocks and a reallocation of trading activity to high-liquidity stocks participating in the Supplemental Liquidity Provider Programme, which is both in line with liquidity clientele effects. Finally, we find weak evidence for a persistent volatility reduction but no indication for a significant FTT impact on price efficiency measured by first-order autocorrelation.

Keywords: anticipation effect; financial transaction tax; long-run treatment effect; market quality; short-run treatment effect (search for similar items in EconPapers)
JEL-codes: G02 G12 H24 M4 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-eec, nep-fdg, nep-fmk, nep-mst and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:122022

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