Abstract

AbstractThe 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.

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