Template-type: ReDIF-Paper 1.0
Author-Name: Gunther Capelle-Blancard 
Title: Curbing the Growth of Stock Trading? Order-to-Trade Ratios and Financial Transaction Taxes
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 midcaps; 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-indifference 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.
Classification-JEL:  G21, H25
Keywords: Financial transaction tax, Securities transaction tax, Tobin tax, Order-to-trade ratio, High-frequency trading, Liquidity, Volatility, Italian Stock Exchange, Borsa Italiana
Length: 41 pages 
Number: 1506
Creation-Date: 2014
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp1506.pdf
File-Format: application/pdf
File-Size: 564
Handle: RePEc:baf:cbafwp:cbafwp1506