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Financial transaction tax and market quality: Evidence from France†

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  • Jerry Parwada
  • Yixuan Rui
  • Jianfeng Shen

Abstract

The effectiveness of Financial Transaction Taxes (FTTs) for deterring speculative trading and improving market quality remains controversial. Studying the FTT imposed in 2012 on large‐cap stocks traded on the Euronext Paris, we find that stocks subject to the FTT subsequently experience significantly decreased turnover and increased spreads relative to the untaxed peers. Further tests suggest that the FTT imposition induces investors to migrate their trades and results in less informativeness in the taxed stocks. Collectively our findings support the view that FTTs deter informed trades and reduce market quality.

Suggested Citation

  • Jerry Parwada & Yixuan Rui & Jianfeng Shen, 2022. "Financial transaction tax and market quality: Evidence from France†," International Review of Finance, International Review of Finance Ltd., vol. 22(1), pages 90-113, March.
    • Handle: RePEc:bla:irvfin:v:22:y:2022:i:1:p:90-113
    DOI: 10.1111/irfi.12342
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    References listed on IDEAS

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    Cited by:

    1. Eichfelder, Sebastian & Lau, Mona & Noth, Felix, 2017. "Financial transaction taxes: Announcement effects, short-run effects, and long-run effects," IWH Discussion Papers 4/2017, Halle Institute for Economic Research (IWH).

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