The Impact of the French Securities Transaction Tax on Market Liquidity and Volatility

Author Name Gunther CAPELLE-BLANCARD  (Université Paris 1 Panthéon-Sorbonne / CEPII) /HAVRYLCHYK, Olena  (Visiting Scholar, RIETI)
Creation Date/NO. January 2014 14-E-007
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In this paper, we assess the impact of the securities transaction tax (STT) introduced in France in 2012 on market liquidity and volatility. To identify causality, we rely on the unique design of this tax that is imposed only on large French firms, all of which are listed on Euronext. This provides two reliable control groups (smaller French firms and foreign firms also listed on Euronext) and allows using difference-in-difference methodology to isolate the impact of the tax from other economic changes occurring simultaneously. We find that the STT has reduced trading volume, but we find no effect on theoretically based measures of liquidity, such as price impact, and no significant effect on volatility. The results are robust if we rely on different control groups (German stocks included in the DAX and MDAX indexes), analyze dynamic effects, or construct a control group by propensity score matching.