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

Gunther Capelle-Blancard

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

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). No other country has gone so far in terms of financial market regulation. 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 (search for similar items in EconPapers)
Date: 2017-06-01
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Citations: View citations in EconPapers (10)

Published in Journal of International Financial Markets, Institutions and Money, 2017, 49, pp.48-73. ⟨10.1016/j.intfin.2017.02.004⟩

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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 (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-01441828

DOI: 10.1016/j.intfin.2017.02.004

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