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Curbing the growth of stock trading? Order-to-trade ratios and financial transaction taxes

Gunther Capelle-Blancard ()

Journal of International Financial Markets, Institutions and Money, 2017, vol. 49, issue C, 48-73

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). 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.

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: F38 G21 H25 (search for similar items in EconPapers)
Date: 2017
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Related works:
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 (2014) Downloads
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