A Blueprint for Europe? - Investigating a Financial Transaction Tax on the French Market

Abstract: This paper investigates the market consequences of financial transaction tax (FTT) implementation. We use data on volume and volatility for securities subject to a recent French FTT, as well as comparable European securities that were not. We find that the FTT has a significant negative effect on both volume and volatility. Furthermore, we attempt to isolate the effects of the FTT's two components: a securities transaction tax (STT) and a high-frequency trading tax (HFTT). No volume or volatility effects are found when the STT is scrutinized on its own. However, we are unable to find any statistical significance in the difference between the diff-in-diff results from the two tests, thus preventing attribution of the negative volume and volatility effects to either HFTT or STT.