Financial transaction taxes: Announcement effects, short-run effects, and long-run effects

Sebastian Eichfelder, Mona Lau and Felix Noth

No 4/2017, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: We analyze the impact of the French 2012 financial transaction tax (FTT) on trading volumes, stock prices, liquidity, and volatility. We extend the empirical research by identifying FTT announcement and short-run treatment effects, which can distort difference-in-differences estimates. In addition, we consider long-run volatility measures that better fit the French FTT's legislative design. While we find strong evidence of a positive FTT announcement effect on trading volumes, there is almost no statistically significant evidence of a long-run treatment effect. Thus, evidence of a strong reduction of trading volumes resulting from the French FTT might be driven by announcement effects and short-term treatment effects. We find evidence of an increase of intraday volatilities in the announcement period and a significant reduction of weekly and monthly volatilities in the treatment period. Our findings support theoretical considerations suggesting a stabilizing impact of FTTs on financial markets.

Keywords: financial transaction tax; market quality; announcement effect; short-run treatment effect (search for similar items in EconPapers)
JEL-codes: G02 G12 H24 M41 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-acc and nep-mst
Note: A completely revised version of this paper has been published as Eichfelder, Sebastian; Noack, Mona; Noth, Felix: The Impact of Financial Transaction Taxes on Stock Markets: Short-run Effects, Long-run Effects, and Reallocation of Trading Activity. IWH Discussion Papers 12/2022. Halle (Saale) 2022. http://hdl.handle.net/10419/251589
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