Financial Transaction Taxes, Market Composition, and Liquidity

98 Pages Posted: 7 Mar 2017

See all articles by Jean-Edouard Colliard

Jean-Edouard Colliard

HEC Paris - Finance Department

Peter Hoffmann

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: February 28, 2017


We use the introduction of a financial transaction tax (FTT) in France in 2012 to test competing theories on its impact. We find no support for the idea that an FTT improves market quality by affecting the composition of trading volume. Instead, our results are in line with the hypothesis that a lower trading volume reduces liquidity, and thereby market quality. Consistent with theories of asset pricing under transaction costs, we document a shift in security holdings from short-term to long-term investors. Finally, our findings show that moderate aggregate effects on market quality can mask large adjustments made by individual agents.

Keywords: Financial Transaction Tax, Institutional Trading, Liquidity, High-Frequency Trading

Suggested Citation

Colliard, Jean-Edouard and Hoffmann, Peter, Financial Transaction Taxes, Market Composition, and Liquidity (February 28, 2017). ECB Working Paper No. 2030, Available at SSRN: or

Jean-Edouard Colliard (Contact Author)

HEC Paris - Finance Department ( email )


Peter Hoffmann

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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