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 THÈSE
Pour obtenir le grade de

DOCTEUR DE L’UNIVERSITE GRENOBLE ALPES

Spécialité : Sciences de Gestion
Arrêté ministériel : 25 mai 2016

Présentée par
Ahmad CHOKOR
Thèse dirigée par Sonia JIMENEZ-GARCES, Université
Grenoble Alpes

Préparée au sein du Laboratoire Centre d’Etudes et de

Recherches appliquées à la gestion

dans l'École Doctorale Sciences de Gestion

Impact de la réglementation sur la qualité des

marchés financiers et le rendement des actifs
financiers: trois essais

The impact of financial markets regulation on

market quality and asset returns: three essays

Thèse soutenue publiquement le 25 Novembre 2020,

devant le jury composé de :

Monsieur Mohamed Arouri

Professeur, Université Côte d’Azur (Rapporteur)
Monsieur Pascal Grandin
Professeur, Université de Lille (Rapporteur)
Monsieur William Knottenbelt
Professeur, Imperial College London (Examinateur)
Monsieur Radu Burlacu
Professeur, Université Grenoble Alpes (Président)
Madame Sonia Jimenez-Garces
Professeur, Université Grenoble Alpes (Directrice de thèse)
 Communauté Université Grenoble Alpes

Ecole doctorale Science de Gestion

Laboratoire Centre d’Etudes et de Recherches appliquées à la gestion

L’université n’entend donner aucune approbation ni improbation aux
opinions émises dans les thèses. Celles-ci doivent être considérées
comme propres à leurs auteurs.
 Abstract

After the repeated occurrences of financial crises in the near past, particularly the most recent crisis in 2008, the
discussion about the necessity of introducing a reform in financial markets received great attention. This Ph.D.
dissertation proposes three essays about the impact of financial market regulation on market quality and asset
returns. The first study aims to assess the impact of the French Securities Transaction Tax (STT), implemented in
France on August 1st, 2012, on different measures of market quality. In particular, we analyze to what extent the
implementation of the French tax affects or alters stocks’ information efficiency. We show that the French STT
has delayed the process of information incorporation into prices for taxable stocks. The second study mainly
focuses on the impact of the European Union commission’s proposal for a common tax on financial transactions
in Europe, which was announced on the 28 of September 2011, on European stock markets. We first analyze the
equity market returns’ reaction to events increasing the probability of a Financial Transaction Tax (FTT) adoption
in Europe. Our findings show that these events have negatively affected stock returns. We also provide evidence
that some firm characteristics explain cross-sectional variations in firms’ return reactions to the tax events. Finally,
our last study examines the impact of events and news increasing the probability of a regulation adoption on the
cryptocurrency market. In order to assess how cryptocurrency investors perceive the market regulation, we use an
event study methodology to analyze this impact on both short-term and longer-term periods. Our findings show
that these regulatory events have a negative impact on cryptocurrencies’ stock returns, implying that investors
have reacted negatively to the possible adoption of regulations on the crypto market. The conceptual and empirical
findings of this dissertation contribute to prior literature on financial market regulation on academic grounds, and
is also relevant for policy makers and investors.

Keywords: Regulation, Financial Transaction Tax, Information Efficiency, Asset Returns, Cryptocurrencies

Résumé

À la suite des crises financières survenues ces dernières décennies, et en particulier de la crise des Subprimes de
2008, la nécessité de réformer les marchés financiers a fait l'objet de nombreux débats académiques. Cette thèse
se compose de trois essais traitant de l’impact de régulations financières sur la qualité des marchés financiers ainsi
que sur la rentabilité des actifs financiers. La première étude a pour objectif d’analyser l’impact de
l’implémentation de la taxe française sur les transactions financières sur différents indicateurs de la qualité des
marchés. Plus précisément, nous examinons dans quelle mesure l’implémentation de cette taxe altère l’efficience
informationnelle du prix des actions. Nous montrons que cette taxe a retardé le processus d'incorporation de
l'information dans les prix des titres financiers taxés. La seconde étude se penche sur l'impact de la proposition de
la Commission européenne pour une Taxe commune sur les Transactions Financières (TTF) en Europe, dont
l’annonce eu lieu le 28 septembre 2011, sur les marchés boursiers européens. Nous analysons dans un premier
temps la réaction des marchés boursiers aux événements qui augmentent la probabilité d'une adoption de la TTF
en Europe. Notre étude empirique montre que ces événements ont eu un effet négatif sur les rendements boursiers.
Nous établissons également que certaines caractéristiques propres aux entreprises justifient des variations, en
coupe transversale, dans la réaction des rentabilités des titres aux événements de régulation. Enfin, notre dernière
étude examine l'impact des événements qui augmentent la probabilité d'adoption d'une réglementation sur le
marché des cryptomonnaies. Afin d'évaluer la perception qu'ont les traders de cryptomonnaies de la réglementation
du marché, nous utilisons une méthodologie d'étude d'événements. Nous analysons l’impact à court et à plus long
terme d’événements liés à la réglementation sur les rentabilités des cryptomonnaies. Nos résultats montrent que
ces événements réglementaires ont eu un impact négatif sur les rendements des cryptomonnaies, ce qui signifie
que les investisseurs ont réagi négativement à l'adoption potentielle d'une réglementation sur le marché des
cryptomonnaies. Les résultats conceptuels et empiriques de cette thèse contribuent à la littérature antérieure sur la
réglementation des marchés financiers, et sont également utiles pour les législateurs et les investisseurs.

Mots-clés : Réglementation, Taxe sur les transactions financières, Efficience informationnelle, Rendement des
actifs, Cryptomonnaies

5
6
I tender this work to the victims of the COVID-19
pandemic we are passing through

7
8
 Acknowledgement

It is very hard to use words that suffice expressing gratitude to people that had, and
continue to have positive effects in our lives. I particularly mention those that participated and
encouraged us in achieving great goals. To all those people it is impossible to show enough
appreciation in a few lines.

First of all, I would like to express my gratitude to my thesis advisor Pr. Sonia Jimenez
Garcès for her support, constructive remarks, and continuous sharing of knowledge and
expertise along this work. The door to her office was always open to me, and she was ready to
answer my requests. Her support and help were the main factors in accomplishing this work.

I would like to thank the members of the jury, Professors Mohamed Arouri, Pascal
Grandin, William Knottenbelt, and Radu Burlacu for accepting to be part of my Ph.D. Thesis
Committee. Having accepted to evaluate my work is a great honor for me and a credibility to
my work.

I thank CERAG and EDSG family members for providing a very casual and comfortable
working atmosphere. First, I am very thankful to Professor Radu Burlacu, the director of the
CERAG laboratory, and the responsible of the Master program that enabled me to enroll in this
Ph.D. journey. Second, I thank Professor Marie-Laure Gavard-Perret, the director of EDSG. I
would not forget to thank Claire Escalon, Florence Alberti and Coralie Lucatello for managing
and helping in all administrative issues.

Many thanks go to my fellow lab mates that I have met during the preparation of this
thesis, as well as some external members and friends that I met in Grenoble and were very
helpful. I particularly mention Elise, Ali.H, Mohamad, Khalil and Abdullah for their great
support.

I would especially like to thank my fiancé Samarmar for her love and constant support.
Words alone could never describe how much you mean to me. Thank you for everything but
most of all, thank you for being my best friend.

Finally, the warmest acknowledgment is for my parents and sisters, this accomplishment
would not have been possible without their sacrifice. I thank them for all the love, trust, and
values they have instilled in me. This Ph.D. thesis is dedicated to you.

9
10
Table of contents

Chapter 1: General Introduction ........................................................................................................... 17

1.1 Overview ..................................................................................................................................... 17
1.2 The impact of the FTT on the quality of financial markets.......................................................... 21
1.2.1 Theoretical Findings ............................................................................................................. 22
1.2.2 Empirical Findings ................................................................................................................. 23
1.3 The impact of regulations on cryptocurrency Markets ............................................................... 31
1.4 Motivations and choice of the thesis subject.............................................................................. 33
1.5 Research question ....................................................................................................................... 34
1.6 Contents of the dissertation ........................................................................................................ 35
Chapter 2: How did the French Securities Transaction Tax Affect the Delay of Information
Incorporation into Prices? ..................................................................................................................... 46
2.1 Introduction ................................................................................................................................. 47
2.2 Literature Review and Research hypothesis ............................................................................... 50
2.2.1 Some key aspects about the French Financial Transaction Tax ........................................... 50
2.2.2 The impact of the STT on volatility and liquidity .................................................................. 52
2.2.3 The impact of the STT on market efficiency ......................................................................... 54
2.3 Data and Methodology................................................................................................................ 59
2.3.1 Data ...................................................................................................................................... 59
2.3.2 Methodology ........................................................................................................................ 60
2.4 Empirical results .......................................................................................................................... 65
2.4.1 Descriptive Statistics............................................................................................................. 65
2.4.2 Difference-in-differences results .......................................................................................... 68
2.5 Conclusion ................................................................................................................................... 70
Chapter 3: Market Reaction to the Financial Transaction Tax Adoption in Europe ............................ 101
3.1 Introduction ............................................................................................................................... 102
3.2 Literature Review ...................................................................................................................... 104
3.2.1 Financial Transaction Tax popular examples...................................................................... 104
3.2.2 Prior research and hypotheses development .................................................................... 107
3.3 Financial Transaction Tax Adoption Events ............................................................................... 114
3.4 Data and Research Methodology .............................................................................................. 116
3.4.1 Data .................................................................................................................................... 116

11
 3.4.2 Research Methodology ...................................................................................................... 117
3.5 Results ....................................................................................................................................... 123
3.5.1 European Market Reaction (Statistical results) .................................................................. 123
3.5.2 Cross-sectional results ........................................................................................................ 124
3.6 Conclusion ................................................................................................................................. 126
Chapter 4: Long and short-term Impacts of Regulation in the Cryptocurrency Market ..................... 146
4.1 Introduction ............................................................................................................................... 147
4.2 Background on cryptocurrencies............................................................................................... 150
4.2.1 What is a cryptocurrency?.................................................................................................. 150
4.2.2 How to classify cryptocurrencies? ...................................................................................... 151
4.2.3 Why regulating cryptocurrencies? ..................................................................................... 152
4.3 Market Reaction to News .......................................................................................................... 154
4.4 Data and Research Methodology .............................................................................................. 156
4.4.1 Data .................................................................................................................................... 156
4.4.2 Research methodology ....................................................................................................... 157
4.5 Empirical Results ....................................................................................................................... 165
4.5.1 Market Reaction results ..................................................................................................... 165
4.5.2 Cross-Sectional results ....................................................................................................... 166
4.5.3 Long-term performance results ......................................................................................... 167
4.6 Conclusion ................................................................................................................................. 169
Chapter 5: General Conclusion ............................................................................................................ 202
5.1 Summary of results.................................................................................................................... 203
5.2 Research contributions.............................................................................................................. 207
5.3 Limits and further research ....................................................................................................... 209
Résumé en français ............................................................................................................................. 212
Complete references ........................................................................................................................... 232

12
Communications
Chokor, A., Alfieri, E. (2020). Long and Short-term impacts of regulation in the Cryptocurrency
market. The Quarterly Review of Economics and Finance (Under Review)

Chokor, A., Alfieri, E. Long and Short-term impacts of regulation in the Cryptocurrency market. In the
International Risk Management Conference (IRMC 2020)

Chokor, A. (2019). Market Reaction to the Financial Transaction Tax adoption in Europe. In the 36 th
International Conference of the French Finance Association (AFFI). Québec City, Canada.

Chokor, A. (2018). How the French Securities Transaction Tax Affects the Quality of Financial
Markets: Information Efficiency and Liquidity. In the International Risk Management Conference
(IRMC). Paris Dauphine, France.

Chokor, A. (2018). How the French Securities Transaction Tax Affects the Quality of Financial
Markets: Information Efficiency and Liquidity. In the 35th International Conference of the French
Finance Association (AFFI). Paris, France.

13
List of tables

Chapter 1

Table 1: A summary of studies that examine the impact of the tax on Stock market 25
volatility……………………………………………………………………………………

Chapter 2

Table 1: List of treatment and control groups…………………………………………….. 81

Table 2: Correlation analysis between French STT firms and control groups……............. 85
Table 3: Descriptive statistics……………………………………………………………... 86
Table 4: Correlation analysis…………………….………………………………………... 90
Table 5: The impact of the French tax on Information Efficiency……….......... 92
Table 6: The impact of the French STT on the Delay Measure……………..… 93
Table 7: The impact of the French tax on stock market liquidity………...……. 94

Chapter 3

Table 1: National Financial Transaction type taxes around the European countries........... 131
Table 2: Empirical Literature Review…………………………………………………….. 133
Table 3: Sample Composition by Country………………………………………………... 134
Table 4: List of countries with their corresponding legal enforcement score…………….. 134
Table 5: European market reaction to events affecting the likelihood of FTT adoption in 135
Europe……………………………………………………………………………………...
Table 6: Descriptive statistics………………………….………………………………….. 137
Table 7: Correlation Matrix……………………………………………………………….. 138
Table 8: The relationship between CMAR and firm characteristics……………………… 139
Table 9: Cross Sectional Analyses (regression each event date)…………………………. 140

Chapter 4

Table 1: Historical regulation and tax principles around the World……………………… 176
Table 2: Market Reaction to Events Increasing the Adoption of Regulation (63 183
events)……………………………………………………………………………………...
Table 3: Market reaction to the news that treats cryptocurrencies under securities laws 186
(22 events)………………………………………………………………………………….
Table 4: Descriptive Statistics…………………………………………………………….. 188
Table 5: Correlation Matrix……………………………………………………………….. 189
Table 6: Cross-sectional Analysis (Fama-Macbeth Regression)…………………………. 190
Table 7: Descriptive Statistics of variables used in performance regressions……………. 191
Table 8: Correlation matrix………………………………………………………………... 192
Table 9: Performance models (366 days)…………………………………………………. 193
Table 10: Descriptive Statics of variables used in performance regressions for longer 194
periods of time……………………………………………………………………………...
Table 11: Period Models for longer periods of time…………………………….………… 195
Table 12: Residual Analysis…………………………………………………….…………. 196

14
List of figures

Chapter 1

Figure 1: Chronological Timeline of the history of FTT proposals.………………...…….. 20

Figure 2: Sub-research questions by study………………………………………………… 41

Chapter 2

Figure 1: The impact of FTT on the speed of information transmission by prices………... 95

Figure 2: Illustration of the STT impact on information efficiency variables and on
liquidity variables……………………...…………………………………………………... 96
Figure 3: Illustration of the STT impact on the Delay variables for three portfolios of
stocks.………………………………...……………………………………………………. 98

Chapter 3

Figure 1: Investors' reaction hypothesis ………………………...………………………… 142

Figure 2: FTT Implementation Timeline.………………………………………………….. 143
Figure 3: Sample Composition by Country.……………………………………………….. 144

Chapter 4

Figure 1: Taxonomy of money adapted from the Bank for International Settlements in
2017……………………………………………………………………...………………… 197
Figure 2: Short-term market reaction predictions (H1)……………………………………. 197
Figure 3: Short-term market reaction prediction (H2)……………………………………... 198
Figure 4: Event study Timeline……………………………………………………………. 198
Figure 5: Histogram of Events………………………………………………………........... 199
Figure 6: PRE and POST periods Timeline…………………………………………........... 199
Figure 7: Closing prices of the seven crypto-currencies in the portfolio…………….......... 200
Figure 8: Closing prices of crypto-currencies in the portfolio except Bitcoin…………….. 200

15
Chapter 1

16
 Chapter 1: General Introduction

1.1 Overview

T
his is not very recently that the Tax on Financial Transactions has been applied.
In 1936, John Maynard Keynes introduced for the first time the idea of adding
taxes to the financial sector with the purpose of regulating it. Since then, there is
a continuous debate among public authorities, financial institutions, and financial economists
about the consequences of such an application. Following the 2008 financial crisis, the idea of
regulating financial markets came back to the public debate when the European Union has
considered imposing a financial transaction tax (FTT). This tax had the objective to attenuate
the short-term speculative transactions and generate significant tax revenues in order to help
clean up the disorders caused by the financial crisis. Until today, there are however still two
opposing points of view about the FTT outcomes, with some arguments in the favor of each
side. In the following, we will start this introduction of the thesis with a review of all financial
transaction tax proposals or projects, from early in the history, from Keynes and Tobin to more
recent contributions including the directive of the European Union proposed in 2011. Figure 1
displays the carried projects in a timeline.

The idea of introducing a tax on financial markets was first proposed by John Maynard
Keynes following the great depression in 1929. Keynes had noticed a difference between the
stock market valuation and its fair actual value due to speculation. The economist suggested
that the financial securities markets should be regulated in order to enable governments to
control the movements of speculative transactions that increase the level of volatility in the
markets and to generate significant revenues to the governments. This proposal concerned only
Wall Street stock exchange transactions and aimed specifically at maintaining price stability.

In 1971, the United States decided to end the system of convertibility of the dollar into gold
(Bretton woods agreements). This step allowed the establishment of a new system of
international monetary exchange: the system of floating change. This new monetary system
requires that the different currencies fluctuate at the same time for market participants to
speculate on currency fluctuations. In 1972, the American economist James Tobin developed a
theory to reduce speculation in financial markets and to control the effects of exchange rate
volatility in order to avoid currencies’ bubbles. This theory consists of introducing a tax on all

17
foreign exchange transactions. According to James Tobin, this tax put “sand in the wheels” in
these types of transactions (i.e. arbitrage transactions). That is, Tobin was trying to penalize
currency conversions from one currency to another one in order to better control and limit this
type of transaction.

In 1984, Sweden became one of the first countries in Europe that introduced a tax on
financial transactions. The government implemented a 0.5% tax on the Swedish stock market.
This rate was doubled (1%) in 1986 and the tax was later extended to the bond market. The
Swedish experiment turned into a disaster resulting in a transfer of more than 60% of financial
activity to the London Stock Exchange. The revenues generated proved to be disappointing as
the tax caused capital to flow out of the country towards tax-free stock exchanges. The tax was
abandoned in 1990. Since then, the Swedish experience became a reference among economists
and regulatory bodies to argue that the introduction of such a tax by a single country is a failure.

The British “Stamp Duty” which was recast in 1986 from a tax existing since 1694, cannot
be ignored when it comes to financial transaction taxes. The Stamp Duty is a 0.5% tax on
transactions in shares of UK companies, as well as on rights and options on these securities.
The tax is chargeable on the purchase price of a share where there is a legal instrument of
transfer. According to Hawkins and McCrae (2002) Stamp Duty revenues reached £4.5 Billion
in 2002. These revenues, lead the UK to oppose the introduction of a European tax on financial
transactions. The UK considers that the implementation of an European FTT will have an
indirect negative impact on financial market efficiency. They consider that implementing this
tax in specific countries, rather than in the European Union as a whole, would create liquidity
problems on one hand, and drive investors away into other markets that are not subject to this
tax.

Stiglitz in 1989 also proposed a tax on securities transactions in order to control the impact
of excessive speculation on the economy. However, Stiglitz emphasized the importance of
taking into consideration that this tax must be designed to control speculation without
discouraging long term investors, as their transactions benefit the economy.

Following the 2008 financial crisis, the debate of financial regulation came back to light in
Europe, which has been reviewed and reformed in most European countries. Such a regulation
was considered as a way to avoid the occurrence of such a scenario (i.e. the financial crisis) in
the future. Public authorities have considered the idea of imposing a tax on financial
transactions in the spirit of the previous experiments proposed by Keynes, Tobin and Stiglitz.

18
And, in this line, on the 28 of September 2011, the European Union has presented a new
directive proposing a common tax across all 27 member states with an anticipated
implementation horizon in 2014. Two types of markets – whose products are considered the
most speculative – are concerned by this project. First, this directive establishes that all financial
transactions between two financial institutions are taxable at a rate of 0.1% for exchanges of
stocks and bonds. Second, derivative products are taxed up to 0.01%. This proposal is only
applicable when at least one of the parties in the transaction is located in the European Union.
The proposed directive has three main announced objectives :

1. Harmonize legislation concerning taxation on financial markets, as a solution to the

increasing number of uncoordinated tax measures implemented by member states.
2. Ensure that financial institutions make a fair and substantial contribution to covering
the costs of the recent financial crisis (regulating or implementing a new tax on financial
transactions could generate significant revenues to the EU governments).
3. Establish appropriate measures to discourage transactions that decrease the efficiency
of financial markets in order to avoid new crises. (European Commission, 2011, pp.1-
33)1

The proposal introduced on the 28 of September 2011 didn’t get the approval of all the EU
member states, due to the opposition of some countries justified by the possible negative
consequences of such a tax (these countries citing the 1984 Sweden experience and other failed
experiences concerning the introduction on such type of transaction tax). However, on
September 2012, eleven member states2 agreed to adopt an FTT and requested the commission
to present a proposal allowing enhanced cooperation. On 22 January 2013, the Commission
authorized the implementation of a common FTT between the eleven member states. However,
this tax has not been implemented yet.

1 European Commission. (2011). Proposal 2011/0261 for a Council Directive establishing a common system of
financial transaction taxes and amending the Directive 2008/7/EC (pp.1-33). Brussels.
2 Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.

19
 John Maynard Sweden Financial European Union
Keynes Proposal Transaction Tax Proposal of a tax
after the 1929 crisis

1936 1972 1984 1986 1989 2011

James Tobin Theory: Stiglitz proposal of a

UK “Stamp Duty” Tax on securities
“Sand in the wheels”
transactions

Figure 1: Chronological Timeline of the history of FTT proposals

This figure shows chronological timeline for all proposals from Keynes and Tobin to
more up to date contributions.

Some member states did not wait for a common agreement to be reached before taking action.
For example, on the 1st of August 2012, France launched a tax on financial transactions that
charges 20 basis points (0.2%) on the purchase of shares issued by French companies with a
market capitalization that exceeds 1 billion EUR. The French tax slightly differs from that of
the European directive introduced in 2011 in terms of the tax rate, exemptions, and the scoop
of payments. The French tax only applies to cash transactions and excludes transactions that
are initiated and completed during the same day; as well it does not apply to derivatives
products. The French Tax is composed of three separate taxation concepts, namely: a tax on
acquisitions of French equity securities and similar instruments known as the Securities
Transaction Tax (STT), a tax on high-frequency trading, and a tax on naked sovereign credit
default swaps. As in the European Union directive, the main purposes of the French tax when
it was implemented were to alter speculative transactions that negatively affect the quality of
the French financial market and to generate a new source of revenues for the French
government.

Even though the French experiment slightly differs from that of the European directive,
it has been an opportunity for public authorities and regulators to assess the impact of the tax
on financial markets. Several studies (Haferkorn and Zimmermann, 2013; Meyer et al., 2015;
Becchetti, Ferrari and Trenta, 2014; Capelle-Blancard and Havrylchyk, 2016; Colliard and

20
Hoffmann, 2017) were conducted after the introduction of the tax in France. All these studies
examined empirically the impact of this tax on the French financial market quality. When the
French FTT was launched in August 2012, the national authorities expected to generate
revenues of 537 million euros by the end of 2012 and an income of 1.6 billion euros for a full
fiscal year. However, the tax raised only a total of 199 million euros in 2012 out of the 537
million anticipated3. French authorities explained the difference between the forecast and the
actual revenues by the general drop in transaction volumes on international markets observed
since 2011.

Following the implementation of the French tax (eight months after the introduction of
the FTT in France) Italy has adopted the European commission directive for its country. The
Italian FTT was also composed of three separate taxation concepts, namely: a tax4 on
acquisitions of Italian equity securities, a tax which concerns the purchase of derivative
products (such as swaps, futures, and options), and a tax on high-frequency trading. Unlike the
French tax, studies on the Italian FTT were rare. Coelho (2016) and Ruhl and Stein (2014), both
conclude that the introduction of the Italian FTT does not seem to have an impact on trading
volumes. According to Rhul and Stein (2014), investors could have taken precautions before
tax implementation.

1.2 The impact of the FTT on the quality of financial markets

There exist two main streams in the literature concerning the impact of an FTT on the
quality of financial markets. Until today, there are still two opposing points of view in the
literature about the FTT outcomes, with some arguments in the favor of each side. Since the
idea was first floated by Keynes in 1929, several studies were conducted in order to understand
the possible impact of such a tax on the quality of financial markets (Hakkio et al. (1994),
Kupiec (1996), Jones and Seguin (1997), Campbell and Froot (1994), Saporta and Kan (1997),
among others). More recent research focuses on the impact of the transaction tax which has
quite recently been implemented on the French market (see for instance Capelle-Blancard and
Havrylchyk (2016), Colliard and Hoffmann (2017)).

3
Sénat. (2013). Projet de loi de finances pour 2014 : Le budget de 2014 et son contexte économique et
financier.
4
The tax is applicable on three conditions: 1) the acquisition must result in a transfer of ownership,2) the
company issuing the security must have its registered office in Italy, and 3) the market capitalization must
exceed 500 million euros.

21
 In fact, implementing a tax on financial transactions is expected to have a wide range of
effects on the functioning of financial markets. Therefore, the purpose of this section is to
present a literature review about the impact of the tax on the financial market quality.

1.2.1 Theoretical Findings

The existing studies analyzing the impact of the tax on financial markets functioning are
generally more empirical than theoretical, especially when it comes to the impact of the tax on
market liquidity and trading volumes. Nevertheless, this does not prevent us from shedding
light on some important theoretical findings of the possible impact of an FTT on the quality of
financial markets. Stiglitz (1989) considers that adding additional transaction costs could
reduce liquidity. The author states that reducing the profitability of speculative trading will lead
to a reduction in the frequency of transactions. Therefore, the impact on the market price of
new orders arriving on the market should then increase. As a result, the bid-ask spread of the
market should widen and liquidity should decrease. Kupiec (1996) considers that the FTT is an
imperfect tool. According to the author, a financial transaction tax in a general equilibrium
model has ambiguous effects on the volatility of financial assets. Rational traders could feel
discouraged from trading, as a result of the tax, in the same manner, that this latter discourages
the activity of destabilizing traders. Thus, the implementation of such a tax may finally lead to
increased, decreased, or stable volatility. Furthermore, Kupiec (1996) shows in his model – a
general equilibrium model – that the volatility of the riskiest assets will decline, and the prices
of these assets will fall. In the same manner, Song and Zhang (2005) have also developed a
general equilibrium model and have analyzed in particular the behavior of speculative traders
(according to the authors called as “noise traders”). They consider that other market participants
in the market such as long-term investors could be discouraged by the introduction of such a
tax (FTT). They conclude that the volume of transactions initiated by other traders such as long-
term investors and even arbitrageur could be affected by the introduction of the tax. The authors
show that the net effect resulting from the introduction of an FTT should in fact depend on the
possible change in the population structure of financial market participants (Trader composition
effect). According to the authors, this composition effect of market participants would interact
with the consequences of a possible reduction in transaction volume and liquidity. The final
effect of such a tax would result from the magnitudes of these two effects (composition effect
and liquidity effect) and their interaction.

22
 Cipriani et al (2015) develop a market microstructure approach, based on the original
Glosten and Milgrom (1985) model. They propose a new methodology to quantify the effect of
a financial transaction tax on informational efficiency and market liquidity. They use a model
of sequential trading by including noise traders and traders with private information, and they
estimate their model for a specific stock traded on the NYSE. They monitor the effect that a
transaction tax would have on trading in this specific stock. According to their study, a
transaction tax majorly impacts informed trading, which obviously has a negative effect on
informational efficiency.

Colliard and Hoffmann (2017) show that the French tax has resulted in a decline in the
equity market quality in France by reducing institutional investors’ activities. The authors shed
light on the impact of the STT implementation on different market participants. According to
the authors, the main reason behind the deterioration of the market quality is that the tax could
have a severe impact on institutional traders’ activity (i.e. the activities of those participants
who stabilize prices in the market).

1.2.2 Empirical Findings

There are a number of empirical studies conducted on different markets and over
different time periods, which show convergent results for some variables of financial market
quality and contrasting results for other variables. Our first intention is to assess the impact of
the tax on the stock market quality. In this section, we present empirical studies that analyze
the impact of the tax on different financial market quality determinants. In the following, we
particularly discuss further the impact of the tax on trading volumes, market volatility, market
liquidity, and information asymmetry.

The impact on trading volumes

Several papers analyze the impact of the financial transaction tax on trading volume and
find in majority converging results. The impact of the tax on trading volume is an exception5 in
the literature since a majority of studies conclude to the same result: there is a drop in market
activity following the introduction of such taxes. The authors find a negative relationship
between transaction costs and trading volumes on equity markets. The higher the transaction
costs, the lower the trading volumes. According to Grundfest and Shoven (1991) and Schwert

5
The studies concentrating on other determinants of market quality show more divergent results.

23
and Seguin (1993), traders could make fewer trades or stop trading entirely in response to new
transaction costs induced by a new tax on financial transactions. Moreover, the authors state
that investors could migrate trading to an untaxed trading platform or substitute taxed assets to
a quite different asset class. Umlauf (1986) and Campbell and Froot (1994) estimate that thirty
percent of the trading volume in the eleven most traded shares on the Swedish market has been
transferred to the London Stock Exchange following the increase in the tax rate in 1986.

Recently, studies that focus on the French STT which was implemented in 2012 also
find a significant decline in trading volume. For example, Capelle-Blancard and Havrylchyk
(2016) show a decline in trading activity on the French market after the implementation of the
French tax in 2012. They ask the question about the type of investors which is driven away
from the market. Are they the institutional investors, whose trading is important for the
functioning of financial markets and whose transactions stabilize prices? Or are they the noise
traders whose actions are not based on information and thus whose transactions harm the quality
of the markets? The study shows that the introduction of the French STT has driven away both
“rational” and “noise” traders. According to the authors, both effects canceling each other out.

If the tax reduces speculative transactions and puts away noise traders, then the tax is
achieving one of its most important objectives. However, if the tax reduces the number of
informed investors, then the tax would be only decreasing the efficiency of the financial market
and driving investors away from the market to other untaxed countries.

The impact on market volatility

There is not an agreement in the academic literature about the impact of an FTT on the
volatility of assets prices on financial markets. Recently, the majority of studies which
investigate the impact of the French STT on different measures of market quality show no
impact on market volatility following the tax introduction (e.g. Haferkorn and Zimmermann
(2013), Capelle-Blancard and Havrylchyk (2016), Colliard and Hoffmann (2017)). According
to the empirical literature, the results of the studies that assess the impact of a financial
transaction tax on asset prices’ volatility are contradictory and can be grouped into three
different findings: a positive relationship (an increase in market volatility after the tax
introduction), a negative relationship (a decrease in market volatility after the tax adoption) and
no impact on market volatility. As the studies are numerous but vary according to the country
on which they focus, we propose a table summarizing the results.

24
Table 1: A summary of studies that examine the impact of a financial transaction tax on
Stock market volatility

Author (Year) Country (Market) Impact on asset

prices Volatility

Umlauf (1993) Sweden Increase volatility

Jones and Seguin (1997) USA Increase volatility

Hau (2006) France Increase volatility

Pomeranets and Weaver (2011) USA Increase volatility

Liu and Zhu (2009) Japan Decrease volatility

Becchetti et al. (2014) France Decrease volatility

Roll (1989) 23 countries No impact

Hu (1998) Hong Kong, Japan, Korea, Taiwan No impact

Saporta and Khan (1997) United Kingdom No impact

Chou and Wang (2006) Taiwan No impact

Haferkorn and Zimmermann (2013) France No impact

Coelho (2016) France and Italy No impact

Capelle-Blancard and Havrylchyk (2016) France No impact

Colliard and Hoffmann (2017) France No impact

The first group (e.g. Umlauf (1993), Jones and Seguin (1997), Hau (2006), Pomeranets, and
Weaver (2011)) finds in their studies a positive relationship between an FTT and volatility (an
increase in market volatility after the tax introduction). For example, Umlauf (1993) studies the
introduction of the 1% securities transaction tax in Sweden in 1984 and its increase to 2%. He
concludes in a study on the Swedish stock market, that the volatility did not decrease during the
period the taxation was in effect. Moreover, Umlauf shows that after the tax increase in 1986,
60 percent of the trading volume migrated to London, which was tax-free at that time. With this
migration to the London stock exchange, the volatility of migrated stocks decreased in
comparison to stocks in Sweden. The author considers this as evidence that the introduction of
the tax didn’t lead to a decrease in volatility, on the contrary, it leads to its increase. Similarly,

25
Pomeranets and Weaver in 2011 discuss new changes in the level of an FTT collected on equity
transactions in New York and conclude that an increase of the FTT is related to a significant
rise in volatility. Hau (2006) found a direct relationship between transaction costs and volatility
when he assessed the impact of the French STT. He considers that market volatility is greater
when transaction costs are higher.

A second set of papers finds that an increase (decrease) in the rate of a transaction tax
results in a decrease (increase) in market volatility. Becchetti et al. (2014) study the impact of
the French tax on trading volumes and intraday volatility of individuals stocks. The authors find
a decrease in trading activity and intraday volatility after the tax implementation. They consider
that their results are consistent with the hypothesis of noise traders’ migration from the market.
Liu and Zhu (2009) examine the Japanese commission deregulation in 1999 that was part of the
financial global reform of the country. They conclude that a reduction in commission rates on
the Tokyo Stock Exchange (which is similar to a one-time decrease of the FTT) resulted in an
increase in market volatility.

Studies in the third group find that the tax has no impact or do not directly affect market
volatility. Saporta and Khan (1997) studied the consequences of the introduction of Stamp
Duty6 in the United Kingdom in 1984. The authors compared the volatility of stocks listed in
both the United Kingdom and the United States and concluded that the volatility of the US
shares was lower. Hu (1998) examines 14 changes in transaction taxes in four Asian countries
(Hong Kong, Japan, Korea, Taiwan) over a long period of time and finds no significant
relationship on market volatility. Concerning the studies that recently examined the impact of
the French tax on the market quality such as Haferkorn and Zimmermann (2013), Capelle-
Blancard and Havrylchyk (2016), and Colliard and Hoffmann (2017), the majority of such
studies demonstrated that there is no impact by the French STT on the price volatility.
According to these authors, the tax has driven away both “rational” and “noise” traders from
the market, and consequently, there is no impact.

The impact on market liquidity

Studies about the impacts of the tax on market liquidity are scarce. One of the main
arguments used by the opponents of a financial transaction tax is that such a tax can destruct
the liquidity of financial markets. Opponents of the tax consider that reducing the profitability

6
This levy differs from that of the European Union directive (the tax has a limited scope of application), as it
excludes financial institutions and in particular market makers from its scope.

26
of speculative transactions by increasing transaction costs will lead to a decrease in the number
of transactions on the market. They consider that the impact on prices of new orders arriving
on the market should then increase. As a result, the bid-ask spread intervals should widen and
liquidity should decrease.

Megarbane (2013), an analyst at the AMF (Autorité des Marchés Financiers) has
conducted a study in order to assess the consequences of the French tax on different measures
of market quality. The author observed the evolution of the spread on Euronext and found a
deterioration of liquidity indicators during (only) the first five days following the introduction
of the French STT. However, he found no impact on liquidity over the long term. Megarbane
(2013) considers that market makers (whose trading is not subject to the French FTT) play an
important role in keeping spreads low while providing liquidity at the best limits. As these
participants are not subject to the tax, they have not been obliged to reduce their activity, which
explains the non-significant results in these liquidity indicators over the long term. These results
are in accordance with the study conducted by Becchetti et al. (2014). On the other hand,
Pomeranets and Weaver (2012), and Colliard and Hoffmann (2017), show that an increase
(decrease) in the tax increases (decreases) market spread levels. They conclude that liquidity is
worsened after the implementation of the tax. Opponents of the FTT also argue that speculative
transactions have a stabilizing effect on the financial market because it increases assets
liquidity. They consider that an implementation of a financial transaction tax will first decrease
the number of shares that are traded in the market, and thus decrease assets liquidity.

The impact on information efficiency

Until today the debate continues among scholars regarding the impact of an FTT on
information efficiency. Proponents of such a tax, like Tobin (1984) and Stiglitz (1989), consider
that noise traders whose actions are not based on the information are the main actors behind
financial markets destabilization. They claim that a financial transaction tax could discourage
noise traders and therefore reduce asset price volatility and increase price informativeness. On
the other hand, opponents of the tax (e.g. Grundfest and Shoven (1991) and Kupiec (1996))
have their own different arguments. They claim that an FTT could discourage fundamental
traders or informed investors more than noise traders, leading to lower information efficiency.

27
 According to the market microstructure literature, there are two types of traders in a
financial market7: informed investors and noise traders. The term “noise traders” has various
definitions in outstanding literature. Scholars identify this term to describe traders who do not
possess fundamental information and who trade randomly for non-informational reasons
(Glosten & Milgrom, 1985; Kyle, 1985). Generally, the purpose of their trading is for satisfying
their hedging or liquidity need, which induces changes in traders’ optimal portfolio holdings.
On the other hand, the fundamentalists (informed traders) trade stocks on the basis of
comparison of security prices with the fundamental values. We recognize a difficulty in the
literature to identify the effect of the tax on these different types of traders and thus to determine
the impact of a financial transaction tax on price efficiency. According to a number of studies
(e.g. Bloomfield et al. (2009)), the tax could discourage both types of traders. If the tax
discourages all informed traders to execute transactions in the market, price will stop generating
information. On the contrary, if the tax only discourages noise traders, although the market
becomes more efficient less noise traders in the market could lower liquidity in the market. This
could make transactions more costly for informed traders and probably lower information
efficiency. In this vein, Black (1986) introduced the beneficial effects of “noise” on financial
markets, where he reaches the conclusion that noise trading is necessary to the existence of
liquid markets: “Noise trading is essential to the existence of liquid market. Noise makes
financial markets possible, but also makes them imperfect. Noise creates the opportunity to
trade profitably, but at the same time makes it difficult to trade profitably”

Another role of noise traders resides in preventing stocks prices for revealing all informed
investors’ information. Grossman and Stiglitz (1980) consider that private information is costly
to acquire, and hence prices cannot be perfectly revealing (reflect all the information possessed
by informed agents), this is known as the Grosman and Stiglitz paradox. If prices were perfectly
revealing, there will be no compensation for investors who spend money to acquire information.
It thus seems realistic to think of assets prices as being partially revealing. As put forward in
rational expectation equilibrium models, the existence of noise traders on the market precisely

7
Rational Expectation Equilibrium models (like for instance Grossman and Stiglitz, 1980) consider the existence
of two types of rational investors: the rational informed investors who receive a private signal on the risky asset
future payoff, and the rational uninformed investors who do not receive any private signal but partially extract,
from the asset equilibrium price, the informed investors’ information. For equilibrium prices to be only perfectly
revealing, Grossman and Stiglitz consider that the supply of risky assets is random. This random supply could be
justified by the existence of noise or liquidity traders on the market.

28
prevents stock prices to be perfectly revealing and thus plays a key role in encouraging informed
investors to pursue their information acquisition activity.

Bloomfield et al. (2009) assess the impact of noise traders on financial markets. They
consider that noise traders could be separated into two types: “Liquidity traders”, who have to
trade for exogenous reasons that stand for various consumption and risk-sharing needs; and
“uninformed traders” who have no exogenous reasons to trade, nor do they have valuable
fundamental information. The authors find that these uninformed traders provide some benefits
to the market (they increase trading volume while reducing Bid-Ask spread, and consequently,
increase the market liquidity). However, noise trading decreases the ability of market prices to
adjust to new information. In order to measure the impact of a Financial Transaction Tax on
informational efficiency, Bloomfield et al. (2009) consider pricing errors or the average gaps
between transactions prices and the true value of the liquidating dividend (DEVP). The authors
find that a securities transaction tax decreases uninformed trader activity, at the same level as
for informed traders’ activity and as a result, the tax does not change the impact of noise trading
on the informational efficiency of the market.

Market reaction to the adoption of a regulation

We have so far focused this introduction on the implementation of a financial transaction

tax. This question relates more globally to the question of the introduction of new regulation on
financial markets and on how the regulation could impact the market quality.

It has always been that the first obstacle facing regulators and public authorities when
introducing new regulations is the fear or undetermined reaction of investors. The problem is
the ambiguous answer to how investors could receive new procedures and regulations. As
previously mentioned, introducing a new regulation could have an impact on the functioning of
financial markets. Investor’s reaction depends on their expectations about what may occur after
the implementation of a regulation (like a tax for example). Investors could react positively to
the adoption of a regulation if they consider that this regulation will attend its objective (as for
example decreasing speculation, insuring price stability…etc.) and consequently would
improve the functioning of the market. As a result, this will lead to an increase in the number
of investors trading in such a market because they will consider that these regulations will
correct the market failures and that they will benefit from a better functioning of the market.
Their favorable reaction will therefore lead to a positive return market reaction. On the other
hand, implementing a new regulation might decrease the number of investors interested in such

29
a market due to several factors. One fundamental factor could be that the increase in transaction
costs will lower the net profitability of trading. As a result, investors will decrease their volume
of transactions and they will sometimes migrate to other untaxed platforms (similarly to what
happened in the Swedish experiment in 1984). Different investors may not incur the same
benefits and the same costs related to a new regulation, but all of them may think in terms of a
tradeoff between benefits and costs.

Several articles are devoted specifically to the impact of introducing or even increasing
the rate of, a financial transaction tax on investors’ behavior. Li et al. (2013) examined the link
between securities transaction tax and stock market behavior in an agent-based financial market
model. The authors present a new artificial stock market model with heterogeneous agents in
order to investigate the impact of varying STTs (increasing tax rate) on market behavior. The
results suggest that STT plays an important role in stabilizing the market by reducing market
volatility. However, in the second phase, the authors study how investor’s trading strategies
change while the STTs rate varies from 0% to 0.9%. The results reveal that the volatility of the
market is decreasing at the expense of lower market efficiency. Moreover, the study shows that
with a high level of STT, both fundamentalists and trend-followers’ trading interests are
decreasing and a majority of investors choose to drive away from the market. Overall, the
authors show that the transaction tax plays a crucial role in stabilizing the market by reducing
market volatility, yet it has a negative impact on market efficiency and therefore it would seem
more reasonable to consider an optimal rate in order to equilibrate between market volatility
and market efficiency.

Eichfelder and Lau (2017) study the short- and long-term market reaction to the French
STT introduction in 2012. Thanks to a difference-in-difference methodology, the authors find
a strong negative significant reaction over the short-term period (after the tax announcement on
March 14, 2012, and on a short-term period after the tax implementation). The results show a
decrease in trading volumes after the tax announcement and on a treatment period of eight
months after the tax implementation in August 2012. However, the reaction was not significant
over the long-term period indicating a temporary impact of the tax on the short-term period.
Moreover, the authors show a significant decrease in price volatility only in the long-term
period. The authors consider this as evidence that the introduction of the tax has a market
stabilizing effect.

30
 Baltagi et al. (2006), assess the impact of a stamp tax rate increase on market behavior
on the Chinese stock markets. The authors compared market behavior before and after
increasing the stamp tax rate from 0.3% to 0.5%. The results indicate that the increase in the
tax rate has increased market volatility. According to the authors, the study reveals that the
market becomes more volatile but less efficient due to the fact that the tax affects all traders
equally. It reduces the number of informed traders as well as the number of noise traders.

1.3 The impact of regulations on cryptocurrency Markets

In consideration of the above points, FTT and STT are tools for stock markets that
answer a necessity to regulate this type of market, in particular after the 2008 financial crisis.
In light of this, we also found it interesting to broader our view about the impact of financial
market regulations, and to focus on a more recent market, precisely developed after the 2008
financial crisis, namely the cryptocurrency market. In this thesis, we are interested to investigate
the impact of regulation on the cryptocurrency market, and to what extent the regulation
adoption, or announcements, could influence the quality of this market. To date, there is a lack
of academic papers that study the impact of regulation on the cryptocurrency market. Before
assessing this impact, we propose to present a general overview of this market and its main
characteristics.

The massive collapse of the banking sector caused by the 2008 financial crisis on the
one hand, and the insecurities in financial institutions, on the other hand, have led to the rigorous
development of cryptocurrencies. Like FTT and STT are considered as a tool to clean the
disorders caused by the financial crisis, we also attempt to investigate whether regulations could
be seen as a solution to fix the possible disorders of the cryptocurrency market.

There is not a unique definition for the cryptocurrencies market, and this latter is 100%
virtual, which exists only in computer networks and is completely independent (i.e. not
managed by the governments or any third party) due to the absence of third parties in the
transactions. Thus, the transaction among the seller and the buyer on the cryptocurrencies
market is performed anonymously. The existence of these currencies is made possible thanks
to the Blockchain technology, which makes use of cryptographic techniques to work without
any central control.

Several policymakers such as the European central bank (ECB), the International
Monetary Fund (IMF), and the European Securities and Market Authority (ESMA) define

31
cryptocurrencies. For instance, the ECB states that cryptocurrencies could be considered as a
subset of virtual currencies, in the form of currencies, or money, which is not subject to
regulations, traded among members of this virtual community, and controlled by its developers.
The IMF adds to this definition by considering a wider range of currencies, including currencies
that are backed by gold, such as the Bitcoin. ESMA considers that these currencies have digital
representations of value that are neither issued nor guaranteed by public authorities or central
banks, and differ from the legal status of money. Even though these definitions are not similar,
one might summarize the aforementioned definitions by stating that cryptocurrencies are
intended to (i) constitute a peer-to-peer (“P2P”) alternative to government-issued legal tender,
(ii) are independent of any central bank, (iii) are secured by a mechanism known as
cryptography.

Since the creation of cryptocurrencies and the establishment of the cryptocurrencies

market (also named “cryptomarket”), this market has been known for its fluctuations, whether
in terms of high volatility or illiquidity. Several financial and government reports (e.g. FSB, the
G20) as well as academic articles (e.g. Auer and Claessens (2018)) shed light on liquidity risk
and suggest that with the potential growth of the crypto market, liquidity appears to be one of
the primary risk concerns. Several factors could influence the cryptocurrency market illiquidity
and limit the ability of its participants to buy or sell crypto-assets, such as the ownership of
crypto-assets which influences the trading volume and liquidity; the issues related to trading
platforms (i.e. the network strength) that could lead to fragmented market structure and
influence the level of liquidity; etc.

Another concern is the volatility risk associated with this cryptocurrency market,
knowing that cryptocurrency prices are highly volatile and unstable (Bouri et al, 2019). The
volatility of this market could be explained by different reasons. For instance, cryptocurrencies
could be seen as a speculative tool, in which speculators are willing to maximize their profits
based on price anticipations. This action per se could increase the volatility of prices and make
the market more irresolute. In addition, the average investor’s profile in the cryptocurrency
industry could be seen as an additional reason for the high market volatility. The barriers to
enter this market are relatively low, unlike other markets, such as the real estate and the stock
market. In other words, no trading license is required, nor a minimum amount of capital, making
this market to be considered by millions of amateur traders around the world.

32
 Finally, we cannot ignore the riskiness of this market as it might facilitate illicit
activities, money laundering transactions, or tax evasion. This is due to the absence of
traceability and easiness of transferability, given that the investor is anonymous, or pseudo-
anonymous. Jacob Boersma, senior manager of the blockchain team at Deloitte states: “Use by
criminals is a disadvantage. The partial anonymity facilitates this.”

The aforementioned risks concerning this market created a wide consensus between
policymakers and financial institutions (e.g., Central Bank Governors, US Securities and
Exchange Commission (SEC 2017) and Financial Stability Board (FSB 2018)) concerning the
importance of regulating this market. However, the main problem that faces regulators is to
understand how to classify cryptocurrencies, given that the nature of cryptocurrencies is still a
subject of debate as it can be viewed differently across countries. There is no agreement
between regulators in different countries about the nature of cryptocurrencies. Some countries
consider it as assets or commodities, while other countries consider it as a means of payment
or currency. However, most governments as well as the academic literature has considered it as
an investment rather than a currency (Yermack; 2015).

Glaser et al. (2014), Baur et al. (2016), and Alfieri et al. (2019) consider that the Bitcoin
could be seen as an investment generating benefits such as common stocks. Holding a Bitcoin
could represent holding a part of the blockchain technology. That is, the blockchain technology
could represent an intangible asset, and the human capital represented by qualified experts who
run codes and use mathematical procedures for the sake of enhancing the system credibility.

1.4 Motivations and choice of the thesis subject

The subject of financial transaction taxes and regulations of financial markets has
always been an attractive and a debated topic between the public authorities, the financial
market institutions and participants, and the financial academics, especially following every
new financial crisis like the one we have experienced in 2008. In particular, the direct effect of
regulations on investors’ welfare and trading behavior makes this topic important for
researchers who want to understand the impact of regulations on the quality of financial markets
functioning.

In fact, the difficulty of regulating financial markets relies on finding an agreement

across countries for a unified project, because each country might prefer to adapt the design of

33
the tax or regulate its market without taking into account the particularities of the others. For
instance, Colliard and Hoffmann (2017) state that the possible results from implementing any
regulation differ between markets due to the variation in market composition.8 For this reason,
different countries refuse to adopt a common project such as the European Union Proposal
which until now, has not been implemented due to the slow negotiation and opposition of some
member states. In addition, the empirical literature has not solved the debate concerning the
importance of FTTs as a tool to correct market failures. Until the day of writing this thesis, the
literature is still divided into two streams, the first supporting the positive impact of FTTs on
market quality indicators, while the other is mitigated. Our intention in this thesis is to highlight
some possible impact of such regulations on the functioning of financial markets and on some
investors’ behavior, in an objective manner without a priori supporting any of these streams.

Besides, we aim in this thesis to analyze the investor’s reaction to a regulation in a new
market - the cryptocurrency market – which is still recent and has known its development after
the 2008 financial crisis. As mentioned previously, until today, there is a lack of studies that
investigate the impact of regulation on the cryptocurrency market. However, even though these
studies are rather few, they put forward similar findings, such as Auer and Claessens (2018)
and Koenraadt and Leung (2019) who show that the regulation would have a negative impact
on the cryptocurrencies returns. The aforementioned above motivated us to choose this subject
and to conduct three different studies which we discuss further in detail in the upcoming section.

1.5 Research question

Throughout our research in this thesis, we conduct three empirical studies within three
related chapters all of which answer one main global question:

What is the impact of financial markets regulations on market quality and asset
returns?

Each of the three studies of this thesis considers a specific aspect (or sub-question) of
this global question. Figure 2 displays the sub-research question per each paper. In the first
paper, we investigate the impact of the French Securities Transaction Tax on the French stock
market efficiency. In the second paper, we examine the stock market reaction to the financial

8
The term ‘market composition’ refers to the proportion of noise traders that exist on the market (The impact
of an FTT varies according to the type of traders who exist on the market).

34
transaction tax adoption in Europe. Specifically, we assess the impact of the tax on asset returns
and other market quality variables. In the third paper, we analyze the long and short-term
impacts of regulation in the cryptocurrency market. We attempt in this paper to examine
whether cryptocurrency traders perceive market regulation in a beneficial way. In the following
paragraphs, we summarize the main points that will be analyzed in detail in the three papers of
this thesis. The sub-research questions are summarized in figure 2.

1.6 Contents of the dissertation

Chapter 2

In our first study, we focus on investigating the impact of the French securities
transaction tax implemented on August 1st, 2012 on different measures of market quality. More
precisely, we shed new light on the link between informational efficiency and tax
implementation. Because of the lack of studies that examine this link, the debate continues
among scholars regarding the possible impact of an FTT on information efficiency. Even if the
STT objective is to improve the market quality, we hypothesize that this tax might disturb the
information efficiency and the speed of information diffusion into prices for French stocks that
are subject to the tax. More precisely, we ask the following question: do rational investors who
observe market prices in order to extract some information about the future payoffs of risky
stocks manages to learn more rapidly the relevant news since the implementation of the STT?
Our first contribution is to answer this question which has not been yet precisely addressed in
the financial literature, to the best of our knowledge.

Our second contribution is a methodological one. We use the Hou and Moskowitz
(2005) “Price delay” measure to assess the impact of the STT on the speed of information
diffusion into prices. To the best of our knowledge, this paper represents the first study which
considers this measure and analyzes the link between the STT implementation and the delay
with which prices react to information. We also consider for robustness checks two other
variables used in the literature for appraising information asymmetry, namely the firm-specific
return variation (FSRV) measure introduced by Durnev et al. (2004) and considered by some
authors as a measure of noise on the market, and the Bid-Ask Spread.

Given the link, put forward in the relevant literature, between liquidity and information
efficiency, our third contribution is to study the effect of the tax on major measures of market
liquidity. We are interested, to complement our analysis about market efficiency, in examining

35
the impact of the STT implementation on the market liquidity as measured by the Amihud
(2002) price impact metric. We also test its impact on the trading volume, a variable already
largely analyzed in the existing literature.

We use a difference-in-difference (DiD) methodology. We find it suitable to use this

methodology as it fits best with the design of the French Transaction Tax which was only
applied to French companies with a market capitalization that exceeds 1 billion euros. We
conduct our study over one year of daily data: 6 months before the tax implementation (from
February 2012 to July 2012), and 6 months after the tax implementation (from August 2012 to
January 2012).

The first study findings suggest that market efficiency was negatively affected by the tax
implementation. Thanks to a difference-in-differences analysis considering alternatively the
DAX 30 German stocks and the MIB Italian stocks as control groups, we show that the French
STT has delayed the process of information incorporation into prices for taxable stocks. We
also show that French stocks submitted to the STT have seen their level of noise, as measured
by the FSRV variable, increasing. We put forward that analyzing only the impact of the STT
on the Bid-Ask spread does not allow putting forward such results. At the same time, we
observed a significant negative impact of the FTT on market liquidity measures, such as the
trading volume and the Amihud ratio.

Chapter 3

The question that was investigated in the second chapter encouraged us to further study
the financial market participants’ perception of the tax and the impact of the tax on stock returns.
In this chapter, we broader our scope of analysis and we focus on the European market, while
the first article focuses on the French market. Therefore, in the third chapter of our thesis, we
assess the European stock market response to the adoption of the FTT.

As mentioned previously in this introduction, the European Union proposal for a common tax
on financial transactions introduced on the 28 of September 2011 didn’t get the approval of all
the EU member states. In this context, the goal of this paper is twofold. First, we analyze the
equity market returns reaction to events9 increasing the probability of an FTT adoption in

9
A particular constraint for analyzing the impact of the FTT in European stock markets resides in the fact that
this tax is not yet applicable in Europe (although there are similar taxes such as the French securities

36
Europe. This allows us to investigate investors’ perceptions of the FTT externalities. More
precisely, we analyze eleven events that may be considered by investors as increasing the
probability of an FTT adoption in Europe. We assess the impact of the FTT implementation
process for eight European countries that are involved in the European Union financial
transactions tax project. We conduct an event study methodology around eleven events that we
consider as increasing the probability of a tax adoption in Europe and analyze the stock returns
reaction to these events. It is possible that investors would react positively to the FTT adoption
if they consider that the tax may decrease the number of noise traders in the market, which will
greatly improve market efficiency (according to the proponents of the tax) and thus reduce
market volatility, stabilizing the market. On the other hand, it is possible that investors would
perceive negatively the tax externalities if they consider that an increase in transaction costs
make the transactions more costly, and lower the net profitability of trading. In this case, the
project of the tax could have discouraged investors to hold European stocks even before the tax
implementation.

In the second part of our article, we explore whether particular firm characteristics
explain cross-sectional variations in firms’ return reactions. We hypothesis that some firm
characteristics may mitigate or amplify the stock returns reaction to events increasing the
probability of a tax adoption in Europe. For example, we consider that investors could react
more positively or less negatively, to a financial transaction tax for firms that are traded a lot
by speculative traders and whose prices are not efficient.

Our findings show that the events increasing the probability of a tax adoption in Europe
have negatively affected stock returns. This confirms that investors have considered these
events as bad news, and have thus considered that the tax adoption would have negative
externalities. Generally speaking, the investors may have considered that the cost of the tax
implementation would be higher than its benefits.

Concerning the cross-sectional results, we found that the magnitude of the returns’
reaction was not the same across all the European firms. In detail, we find more negative
reactions in European firms with lower liquidity. Moreover, the results show that for stocks
submitted to high information risk (high level of price delay and FSRV), the event is welcomed
by investors as positive news. For these stocks, the tax may be seen as reducing information

Transaction Tax which is applied locally in France). This justifies our choice to analyze events which increase the
probability of a FTT adoption than only events of the real adoption of a FTT.

37
asymmetry risk. These results are consistent with investors expecting the application of a
financial transaction tax to improve the information quality for these latter stocks. We also find
a positive reaction of investors for firms that are located in countries with higher legal
enforcement, which suggests that the event is welcomed by investors as positive news in
countries that have good legal enforcement. We can interpret this result by considering that as
much as there is a good application of laws, an efficient judicial system, and a low level of
corruption, as much as investors could believe that the application of any new tax or regulation
will decrease the risk related to the concerned market (i.e. where the tax has been implemented),
and correct the market failures.

Chapter 4

Chapters 2 and 3 of the thesis focus on the FTT and STT which are tools that arise as a
result of the need to regulate stock markets, particularly during the 2008 financial crisis. They
analyze the impact of this tax on the quality of stock markets, and the stocks return reaction to
events increasing the probability of a European tax. In the third and last chapter of this Ph.D.
dissertation we meant to study the impact of such type of regulations on the functioning of a
recent market under development since the 2008 financial crisis, namely the cryptocurrency
market. This paper could be divided into two main contributions. We first attempt in this paper
to assess how cryptocurrency traders perceive the market regulation in a short-term period. We
use an event study methodology to examine how regulatory news and events have affected
returns in the cryptocurrency market. There exist two scenarios for investors’ reaction: first, the
adoption of a regulation aimed at improving and stabilizing the functioning of the market, which
would lead to a positive reaction by investors who consider that these regulations will correct
the market failures. In this case, the investors’ demand for cryptocurrencies will increase, thus
making the market price of these assets higher. The second one is that the regulation might
decrease the number of investors, especially those motivated by the absence of regulations and
by decentralization. Therefore, adding additional regulations would decrease investors’ interest
in this market. In this case, the demand for cryptocurrencies will drop, thus making the price of
these assets decrease.

We further assess whether specific cryptocurrency characteristics and in particular their

liquidity explain cross-sectional variations in cryptocurrencies’ return reactions. As we
mentioned before, several financial and government reports (e.g. FSB, the G20) shed light on
liquidity risk and consider that the market liquidity appears to be one of the primary risk

38
concerns; regulating this market has a major objective of improving its liquidity. In order to
conduct this part of the study, we include proxies of market liquidity such as the Coefficient of
Elasticity of Trading (CET) and the Amihud (2002) illiquidity ratio. Our main purpose in this
part is to analyze whether there is a variation between cryptocurrencies' reactions depending on
their different characteristics. This approach aims to analyze why the reaction is not the same
for all cryptocurrencies (i.e. if the reaction is positive/negative, then which cryptocurrencies’
characteristics amplify, or on the opposite mitigate, the investors’ reaction).

The second part of this article discusses how regulatory events have affected the
performance of cryptocurrencies on a longer time horizon. The purpose of this section is to
analyze the regulation’s impact on the market equilibrium prices at a longer time interval than
the short-term effects considered by the event study. In order to study the regulation’s impact
on the crypto assets’ performance, we use traditional performance measures that are well-
known in the literature. We more precisely focus on the performance of a cryptocurrency
portfolio composed of seven major cryptocurrencies, Bitcoin (BTC), Ether (ETH), Litecoin
(LTC), Tether (USDT), Ripple (XRP), Dash (DASH), Monero (XMR). We thus appraise the
cryptocurrencies performance by the risk-adjusted return from, alternatively, the CAPM model,
the Fama-French 3-factors model (Fama and French, 1992) and the Carhart model (Carhart,
1997).
Our findings show that investors have reacted negatively to the possible adoption of
regulations on the crypto market and that they considered these events as ‘bad’ news. Such
results may be backed-up by several reasons, including that many investors may have been
motivated to enter the market mainly because it is a non-regulated market, and due to the
absence of additional transaction costs. The results are consistent with literature findings as in
Auer and Claessens (2018) and Koenraadt and Leung (2019) who showed that regulation would
have a negative impact on the cryptocurrencies return. Moreover, we found that investors
reacted less negatively for most illiquid cryptocurrencies, as well as for cryptocurrencies that
are submitted to more information asymmetry.

Regarding the results of the performance models, it turns out that the performance of
the cryptocurrency portfolio composed of seven major cryptocurrencies has been negatively
affected by the regulation events.

The remaining of this dissertation is organized as follows: Chapter 2 examines the

impact of the French Securities Transaction Tax on market efficiency. Chapter 3 investigates

39
the European market reaction to the FTT proposal introduced in 2011 by the European Union.
Chapter 4 analyzes the long and short-term impacts of regulation in the cryptocurrency market.
Finally, the last chapter concludes the thesis.

40
 Figure 2: Sub-research questions by study
This figure presents the sub-research questions of the three studies of the Ph.D. dissertation

41
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Chapter 2

45
Chapter 2: How did the French Securities Transaction Tax Affect

the Delay of Information Incorporation into Prices?

Abstract

I
n August 2012, France has introduced a Security Transaction Tax (STT) that charges
20 basis points on the purchase of shares issued by French companies with a market
capitalization that exceeds 1 billion euros. At the European level, there have been
contradicting points of views that lead to the delay in the adoption of such tax. Recently, there
has been a European tendency to adopt a tax similar to the one applied in France. As pointed
out by the literature the implementation of such a tax on financial transactions in France has
had a wide range of effects on the quality of financial markets. While the impact of the STT on
microstructure variables has been deeply analyzed, there is still a need for research about the
externality of this tax for stock prices informativeness. Do rational investors who observe
market prices in order to extract some information about the future payoffs of risky stocks
manage to learn more rapidly the relevant news since the implementation of the STT? The
global objective of our paper is to answer this question which naturally raises since the objective
of the STT was to favor informational trading over pure speculative one. We consider the Price
Delay measure of Hou and Moskowitz (2005) for appraising the delay with which stock prices
embed new information about global market news. Thanks to a difference-in-differences
analysis considering alternatively the DAX 30 German stocks and the MIB Italian stocks as
control groups, we show that the French STT has delayed the process of information
incorporation into prices for taxable stocks.

Keywords: Securities Transaction Tax, Information Efficiency, Price Delay, Speculation

JEL Classification: G12, G14, G18, G28

46
2.1 Introduction

The Financial Transaction Tax (FTT) put in light after the financial crisis of 2008, however,
found its roots many years before 2008 and has generated a large global political debate.
Following the 2008 financial crisis, the European Union has considered imposing a tax on
financial transactions in order to alleviate the financial markets from short-term speculative
transactions and generate significant tax revenues. These revenues were considered helpful to
clean up the disorders caused by the financial crisis. In this context, on the 1st of August of
2012, France launched a tax on financial transactions for the purchase of shares issued by
French companies with a market capitalization of more than one billion euros. The
implementation of such a tax on financial transactions will be shown to have a wide range of
effects on the quality of financial markets. Theoretical and empirical studies analyzing the effect
of such a tax generally globally show that the number of shares traded (i.e. the trading volume)
has been negatively affected by the implementation of an FTT. However, the microstructure of
a market also plays a crucial role in the FTT impact on market quality. The impact of the FTT
on market quality indicators such as information efficiency, market volatility, and market
liquidity has not reached a consensus in academic research.

The French financial tax is composed of three different taxation components, the Securities
Transaction Tax, the tax on high-frequency trading, and the tax on naked sovereign credit
default swaps. In this paper, we focus our attention on the first component, namely the
Securities Transaction Tax (STT). This tax requires the application of a fee on shares, stocks,
or any other securities that provide or could provide access to capital or voting rights. One of
the main objectives of the tax is to favor informed investors over Noise traders by reducing the
number of speculative tradings Capelle-Blancard and Havrylchyk (2016). The literature that
analyses the impact of the tax on information efficiency is however scarce. Recently and
especially after the adoption of the French tax in 2012, many empirical studies have examined
the externalities of the STT adoption for the quality of financial markets. The related papers
have considered different market microstructure variables appraising diverse aspects of market
quality, and in particular financial market liquidity and volatility. As far as market efficiency is
concerned, the existing papers dealing with this subject focus on the Bid-Ask spread variable
and on intraday-data based measures. We thus claim that more work is needed to conclude
about the impact of the STT on the information efficiency of the closing prices on the financial
markets. Has the STT reduced the ability of rational investors to extract information from these

47
prices? This article has the ambition to answer these questions by considering the appropriate
variables to analyze.

There are still two opposing points of view about the FTT outcomes, with some arguments
in the favor of each side. Proponents of such a tax, like Tobin (1984), Stiglitz (1989), and
Summers and Summers (1989), consider that noise traders whose actions are not based on
information constitute the main factor behind financial markets destabilization. For these
authors, a Financial Transaction Tax could discourage noise traders from exchanging assets on
the market and could therefore reduce asset price volatility and increase price informativeness.
Furthermore, Keynes (1936) considers that because many traders are motivated by short-term
speculations and not by long-term trading, the implementation of a Financial Transaction Tax
would discourage speculative trading (which would become less profitable) and would hence
reduce stock price volatility.

On the other hand, opponents have their own different arguments. They claim that a
Financial Transaction Tax could discourage fundamental traders or informed investors more
than noise traders, leading to higher (rather than lower) volatility on the financial markets and
less information efficiency (see for instance Grundfest and Shoven, 1991, and Kupiec, 1996).
Opponents of the FTT also argue that speculative transactions have a stabilizing effect on the
financial market because it increases assets’ liquidity. Therefore, these authors mention that an
implementation of a Financial Transaction Tax will first decrease the number of shares that are
traded in the market, and thus decrease the liquidity of the assets. Black (1986) introduced the
beneficial effects of “noise” on financial markets, and he reached the conclusion that noise
trading is necessary to the existence of liquid markets. The implementation of an FTT, by
decreasing the number of noise traders on the market, could lead informed investors to trade
less or not trade if the benefit of their information is not enough to compensate the transaction
costs they incur.

When considering rational expectation equilibrium models that formalize the existence of
market frictions, we can envisage the existence of different types of investors trading on the
market: informed and uninformed rational agents, but also noise or liquidity traders. Grossman
and Stiglitz (1980) shed light on the importance of the existence of noise for the equilibrium
price of the risky assets not to perfectly reveal the information possessed by informed investors
(and acquired at a cost) to uninformed investors of the market (Grossman and Stiglitz

48
paradox10). In this same model, noise is the friction that prevents prices from being
informationally efficient and which makes information frictions remain on the market. The
source of noise introduced by Grossman and Stiglitz (1980) consists of a random supply of
risky asset and can be justified by the presence of noise traders on the market who trade for
non-informational purposes. Kyle (1985) formally considers the existence of noise traders as
participants of the financial market, and thus goes a step further than Grossman and Stiglitz
(1980) in the formalization of noise trading.

A very nice paper from Colliard and Hoffmann (2017) addresses the question of which
effect dominates after the FTT has been implemented: (1) has the French FTT lead to a drop in
trading volume together with an increase in price efficiency or (2) has the French FTT lead to
a drop in both liquidity and price efficiency. The authors analyze this question by considering
the “absolute value of first-order return autocorrelations based on the final mid-quote of 5-min
intervals” as the measure of price efficiency mentioning that “efficient prices should be
unpredictable”. They conclude that the French FTT has led to a reduction in trading volume
and in informational efficiency of prices.

In our paper, instead of considering intraday level data, we rather consider the point of
view of a rational investor who observes end-of-day market prices and who tries to extract
relevant information allowing him to take better financial decisions. Broadly speaking, this
investor is the one for whom the STT, given its advertised objective, should show a positive
externality. Does this investor manage to learn more rapidly the relevant news since the
implementation of the STT? Said differently, does the price incorporate more quickly the
relevant information since the implementation of the STT? Our first contribution is to answer
this question which has not been yet precisely addressed in the financial literature, to the best
of our knowledge.

Our second contribution is a methodological one. We use the Hou and Moskowitz
(2005) Price delay measure to assess the impact of the STT on the speed of information
diffusion into prices. To the best of our knowledge, this paper represents the first study which
considers this measure and analyzes the link between the STT implementation and the delay
with which prices react to information. We also consider for robustness checks two other

10
If private information is costly to acquire, and if prices perfectly reflect the full information, there is no
compensation for the capital invested to acquire this information and informed investors stop acquiring private
information.

49
variables used in the literature for appraising information asymmetry, namely the firm-specific
return variation (FSRV) measure introduced by Durnev et al. (2004) and the Bid-Ask Spread.

Given the link, put forward in the relevant literature, between liquidity and information
efficiency, our third contribution is to study the effect of the tax on major measures of market
liquidity. We are interested, to complement our analysis about market efficiency, in examining
the impact of the STT implementation on the market liquidity as measured by the Amihud
(2002) price impact metric. We also test its impact on the trading volume, a variable already
largely analyzed in the existing literature.

The rest of the paper is structured as follows: Section two provides an overview of the
French Transaction Tax main characteristics as well as a related literature review. We also
present our main hypothesis and the contributions of our study. Section three presents our data
and methodology. Section five provides our empirical results. Finally, section six concludes the
paper.

2.2 Literature Review and Research hypothesis

In order to well understand the concept of the French FTT, we first introduce hereafter its
main characteristics. We then present a literature review about studies analyzing the impact of
the FTT on financial market quality. We first focus on volatility and liquidity determinants of
market quality. We then expose literature about the impact of the STT on market efficiency.
We finally present the focus of our paper as well as its contributions to the existing literature.

2.2.1 Some key aspects about the French Financial Transaction Tax

France was one of the first supporters of a tax on financial transactions, and together with
Germany, launched the initial concept of a European proposal for the tax on August 16, 2011.
On August 1st 2012, France launched a tax on financial transactions that charges 20 basis points
on the purchase of shares issued by French companies with a market capitalization that exceeds
1 billion euros. The French Tax is composed of three separate taxation concepts, namely: a tax
on acquisitions of French equity securities and similar instruments known as the Securities
Transaction Tax (STT), a tax on high-frequency trading, and a tax on naked sovereign credit
default swaps.

50
Securities Transaction Tax (STT)

The STT is applied to acquisitions of securities, such as shares and other securities that
provide or could provide access to capital or voting rights. The STT must be applied to stocks
issued by companies whose headquarters are located in France and with a market capitalization
of more than 1 billion euros on the 1st of January of the year of taxation. A list of firms that are
subject to the tax is updated by the French authorities each year. In August 2012 the tax rate
was 0.2%. Nevertheless, it must be noted that the STT includes several exemptions, such as
Issuance of equity securities on the primary market, market-making activities, exchangeable
and convertible bonds, acquisitions of liquidity agreements, intra-group, restructuring
transactions, and employee saving schemes, and temporary transfers of securities.

Moreover, the STT is collected once a day, and hence, intraday trading is not affected. The
buyer is liable for the tax, which is based on the price at which the shares are sold. According
to the estimate of the French government in 2012, the tax would generate total revenue of 1.6
billion euros in 2013. However, only 198 million euros were collected from the tax on shares.

High-Frequency Trading (HFT)

Following the STT, the government introduced a 0.01% tax on High-Frequency Trading
(HFT), which is applied to the notional amount of modified or canceled orders by high-
frequency traders within a half of second time span, on a given trading day above 80% threshold
of total trading orders.

Unlike the STT, the tax on HFT is applied to all the French stocks without taking into
consideration the market capitalization; yet it is only applied to HFT residing in France.
According to the finance committee of the French parliament’s lower house, the tax on HFT
didn’t generate revenues in 2013.

Tax on Naked Sovereign Credit Default Swaps (CDS)

The rate of this tax is 0.01 percent and the taxable amount is represented by the notional
amount of ‘naked’ CDS purchased on the French market on bonds issued by EU Member states
governments.

In this paper, we only focus on the component of the FTT which has been introduced first,
namely the Securities Transaction Tax (STT).

51
2.2.2 The impact of the STT on volatility and liquidity

In this section, we discuss what prior literature has presented with regards to specific market
quality parameters such as the stock’s volatility, the stock’s trading volume, and the stock’s
liquidity.

Market volatility

As far as volatility is concerned, a large number of economists have mentioned that the
rising cost of trade will reduce the amount of disruptive speculation, thereby reducing excess
volatility. Keynes (1936), Tobin (1978), Stiglitz (1989) and Summers and Summers (1989)
claim that increasing transaction costs will decrease volatility and shift the capital used for
speculative trading toward more beneficial activities. Moreover, they argue that some traders
(noise traders) “do not make trades based on information about the fundamental value of a
security, causing security prices to get around or move from their intrinsic value.” This
movement of prices would, in turn, reduce the quality of the information contained in market
prices and create excess volatility in the market. Thus, following these researchers, by requiring
an FTT and discouraging the activity of noise traders, prices would stabilize and volatility
would decrease.

On the other hand, because an FTT is applicable to all trading activities and not just
speculative ones, it can decrease other types of trading operations. For example, Amihud and
Mendelson (2003), consider that an FTT would reduce the amount of informed trading, which
would exaggerate the gap between an asset's transaction price and its fundamental value. This
aspect can increase volatility. These researchers claim that an FTT could have a stronger impact
on the activities of participants who stabilize prices, like informed traders and liquidity
providers.

There have been many attempts to solve this debate empirically. The results of the
empirical studies can be grouped into three different findings: a positive relationship, a negative
or inverse relationship, and a “no impact” one. The first group of papers comprises the
following studies: Umlauf (1993), Jones and Seguin (1997), Baltagi et al. (2006), Pomeranets,
and Weaver (2011). The authors put forward a positive relationship between the FTT and the
volatility. For example, Umlauf (1993) concludes in a study on the Swedish stock market that
the volatility did not decrease during the period the taxation was in effect. This author studies

52
the introduction of the 1% securities transaction tax in Sweden in 1984 and its increase to 2%
in 1986. He concludes that after the tax increase, 60 percent of the trading volume migrated to
London, which was tax-free at that time. Similarly, Pomeranets and Weaver (2011) discuss
new changes in the level of an FTT collected on equity transactions in New York and conclude
that an increase of the FTT is related to a significant rise in volatility.

A second set of papers finds that FTTs and volatility possess an inverse relationship
with respect to each other. Recently, Liu and Zhu (2009) examine the Japanese commission
deregulation in 1999 that was part of the financial global reform of the country. They conclude
that a reduction in commission rates on the Tokyo Stock Exchange resulted in an increased
volatility.

Studies in the third group find that financial transactions taxes do not directly affect
volatility. Roll (1989), investigates the volatility of stock returns in 23 countries and finds no
proof that there is a relation between volatility and transaction taxes. Hu (1998) examines 14
changes in transaction taxes in four Asian countries over a long period of time and finds no
significant relationship on market volatility.

Market Liquidity

According to the prior literature, there is an obvious disagreement about the impacts of
FTT on market quality. The impact on trading volume is however an exception because a
majority of studies show the same result, i.e. a drop in market activity following the introduction
of such a tax (or following a general increase in transaction costs). Grundfest and Shoven (1991)
and Schwert and Seguin (1993) claim that an FTT could reduce the market volume in different
ways. First, traders could make fewer trades or stop trading entirely in response to higher
transaction costs. Second, they could migrate trading to an untaxed trading platform or
substitute taxed assets for a quite different asset class. Recently, studies that focus on the French
STT have also found a significant decline in trading volume following the tax implementation.
For example, Coelho (2016) finds a decrease in turnover, especially for liquid stocks. Some
papers show that the impacts on trading volume were the biggest for large and liquid stocks, as
well as for institutional investors (Meyer et al, 2015; Colliard and Hoffmann, 2017). Capelle-
Blancard and Havrylchyk (2016) also show a decline in trading activity after the
implementation of the French tax in 2012, but they state that there isn’t any impact on a
theoretically based measure of liquidity, such as the price impact.

53
 Studies focusing on the impacts of the tax on market liquidity are scarce. Some authors
consider that the financial transaction tax lowers market liquidity by making each trade more
costly. The given reason is that market forces respond to the tax by providing fewer and lower
quality trading opportunities. Pomeranets and Weaver (2012) show that an increase (decrease)
in the tax increases (decreases) markets spread levels. They conclude that liquidity is worsened
after the implementation of the tax. Furthermore, the authors state that “some defenders of the
FTT argue that even if the transaction tax could lead to a "weaker" or a "thinner" market by
discouraging sellers and buyers, it would not increase the bid-ask spread.” For example,
Stiglitz (1989) considers that, even though it may take a longer time for a buyer and a seller to
trade in a thinner market, the extra seconds or minutes would not have a significant impact on
liquidity.

2.2.3 The impact of the STT on market efficiency

The informational efficiency refers to how well and quickly market prices reflect the
true values of an underlying asset. According to the market microstructure literature, as well as
to the Rational Expectation Equilibrium (REE) models literature, there can be different types
of traders in a financial market: informed investors, uninformed investors, and noise traders.
The term “noise traders” has various definitions in outstanding literature. Scholars identify this
term to describe traders who do not possess fundamental information (Glosten and Milgrom
(1985); Kyle (1985) and who trade to satisfy liquidity needs or for hedging reasons. On the
other hand, the fundamentalists (informed traders) trade stocks on the basis of comparison of
security prices with the fundamental values. It must be noted that the trading activity of these
traders allows the prices to generate private information through their strategies. In Grossman
and Stiglitz (1980), uninformed rational investors do not possess some private information but
try to infer, by observing assets’ equilibrium prices, part of the informed investor's information.
They base their trading strategies on the information they extract from prices. The existence of
noise in such a market prevents prices from being perfectly revealing the information.

The introduction of a Financial Transaction Tax will increase the transaction cost for
short-term speculative traders but may have less impact on the long-term informed traders
because the trading frequency of short-term traders is much greater than that of long-term
investors. As a result, the transaction tax could discourage the trading of noise traders. We
notice a difficulty in the literature to identify the effect of the STT on different types of traders
and to determine the impact of the FTT on price efficiency (since the tax could discourage both

54
types of traders). If the tax discourages all informed traders to execute transactions in the
market, the price will stop generating information. On the contrary, if the tax only discourages
noise traders, the market could become more efficient but less noise traders in the market could
also lower the market liquidity. This could make transactions more costly for informed traders
and could as a consequence probably lower information efficiency. In this context, Black (1986)
introduced the beneficial effects of “noise” on financial markets, where he reaches the
conclusion that noise trading is necessary to the existence of liquid markets. “Noise trading is
essential to the existence of liquid market. Noise makes financial markets possible, but also
makes them imperfect. Noise creates the opportunity to trade profitably, but at the same time
makes it difficult to trade profitably”.

Researchers have always shown great interest in how to measure information

asymmetry and to assess its impact on financial markets. The capital asset pricing model
(CAPM) assumes that all investors are homogeneously informed about the assets’ payoffs and
that only the market risk is rewarded. Nevertheless, the empirical literature has shown that this
assumption is not realistic. In this context, several researchers such as Grossman and Stiglitz
(1980), Admati (1985), Easley and O’Hara (2004) consider that investors are not
homogeneously informed. They model information risk and mention that it should be taken into
consideration within asset pricing models. Grossman and Stiglitz (1980) prove, within the
context of a noisy Rational Expectations Equilibrium (REE) model, the existence of a partially
revealing equilibrium price and show that investors require an information risk premium for
holding securities on which they are not well informed. Easley and O’Hara (2004) introduce a
new microstructure-based measure of private information, the probability of information-based
trading measure (PIN), and empirically prove that investors require an information risk
premium for holding assets on which they are not well informed in their portfolio.

Bloomfield et al. (2009) assess the impact of noise traders on financial markets. They
consider that noise traders could be separated into two types: “Liquidity traders”, who have to
trade for exogenous reasons that stand for various consumption and risk-sharing needs; and
“uninformed traders” who have no exogenous reasons to trade, nor do they have valuable
fundamental information. The authors find that uninformed traders provide some benefits to the
market: they increase trading volume, reduce Bid-Ask spread, and consequently increase the
market liquidity. On the opposite, noise trading decreases the ability of market prices to adjust
to new information. In order to measure the impact of a Financial Transaction Tax on
informational efficiency, Bloomfield et al. (2009) claim that an STT decreases noise trader

55
activity, at the same level as for informed traders’ activity. “STT reduces activity by noise and
informed traders roughly equally (...), and perhaps as a result it does not alter bid-ask spreads
or other price impact measures of liquidity, and has only a weak effect (if at all) on the
informational efficiency of prices”. As a result, it seems that the tax does not reach its goal,
which is to alter the impact of noise trading on the informational efficiency of the market.

Edwards (1993) studies the impact of a Financial Transaction Tax on US futures

markets. He argues that even a small tax on futures transactions may result in a significant
increase in trading costs which makes US futures markets less competitive because of the
impact on price efficiency. He claims that a tax-induced reduction in trading may decrease
informational efficiency by discouraging “information” based transactions made by informed
traders.

Fleming et al. (1996) claim that the rates of price discovery in the stocks, futures, and
options markets are due to differences in trading cost. They support the view mentioning that
markets with lower trading costs tend to lead those with higher trading costs in terms of price
discovery. Wang and Yau (2000) found that a reduction in an explicit trading cost such as the
securities transaction tax would lower the implicit trading cost, such as the bid-ask spread and
the degree of information asymmetry. In addition, Chou and Lee (2002) study the impact of a
transaction tax cut on the price efficiency of Taiwan’s Futures exchange (TAIFEX) and the
Singapore stock exchange (SGX) and demonstrate that a reduction in the transaction tax greatly
improves the efficiency of price execution. They reveal that after the tax reduction in 1996, the
TAIFEX played a leading role over the SGX in the price discovery process for index futures
contracts. In their empirical tests, they focused on the differences in trading costs and
information transmissions between SGX and TAIFEX for the sample periods, both before and
after the tax reduction. In line with previous findings, the derived tests revealed that the quoted
spreads, effective spreads, and speed of information incorporated into prices, all improved
significantly compared to those on SGX, after the transaction cost reduction on TAIFEX on the
1st of May 2000. In order to test and compare the speed of information transmission between
these two markets, they use the augmented Dickey-Fuller (ADF) test to identify the existence
of unit roots in price series. Add to this, they also show that after the tax rate reduction, both
liquidity traders and informed traders have incentives to trade more often on TAIFEX. Finally,
the results of this study support the fact that the transaction tax delays the price discovery
process.

56
 Colliard and Hoffmann (2017) assess the impact of the French FTT that was
implemented in August 2012. The authors shed light on the impact of the FTT implementation
for different market participants. In conducting this study, the authors focused on French stocks
that are subject to the tax. The authors ask the following questions: (1) has the French FTT led
to a drop in trading volume together with an increase in price efficiency? Or alternatively (2)
has the French FTT led to a drop in both liquidity, trading volume, and price efficiency? The
authors consider two elements contributing to the effects of this tax on market efficiency. The
first element, the composition effect, consists in the variation of the existing market participants.
The tax may indeed have driven out of the market noise traders rather than informed investors.
In that case, the tax may have improved market efficiency. The second element, the liquidity
effect refers to the fact that the tax may decrease trading volumes globally and may thus have a
negative impact on market liquidity and thus on market efficiency. The two previously
mentioned effects may exist altogether. The authors analyze the impact of the tax on market
efficiency by considering the “absolute value of first-order return autocorrelations based on the
final mid-quote of 5-min intervals” as the measure of price efficiency mentioning that “efficient
prices should be unpredictable”. Colliard and Hoffmann (2017) choose well-known variables
in the literature such as the price volatility, the price efficiency, the quoted spread, etc... These
variables were measured based on intraday data extracted from the Euronext exchange. The
findings of this study show that the tax did not improve the market quality by affecting the
composition of the trading volume. On the contrary, the results show that the tax is decreasing
the trading volumes, which is directly affecting the liquidity and the quality of the financial
market. In particular, the authors put forward that the FTT has decreased information efficiency.
The main reason behind these results represents the deterioration of the market quality, as the
tax could have a severe impact on institutional traders’ activity (i.e. the activities of those
participants who stabilize prices in the market).

Cipriani et al (2019) propose a new empirical approach based on the original Glosten
and Milgron (1985) model. They develop a new methodology to quantify the effect of a
financial transaction tax on informational efficiency and market liquidity. They use a model of
sequential trading by including noise traders and traders with private information (they have
estimated the model for a specific stock traded on the NYSE) and monitor the effect that a
transaction tax would have on trading in a specific stock. According to their study, a transaction
tax majorly impacts informed trading, which will obviously have a negative effect on
informational efficiency.

57
Research hypothesis

There is a consensus in the existing literature about the inverse relationship between
transaction costs and trading volume. An increase in transaction costs is considered to increase
the transaction costs and to lower the net profitability of trading. This may lead investors to
trade less in the market, which may negatively affect market liquidity. As a noteworthy
consequence, information possessed by informed traders could be more slowly incorporated
into asset prices, affecting the overall market efficiency.

This paper finds its roots in the theory of microstructure and rational expectation
equilibrium models considering the existence on the market of rational informed traders and
rational uninformed investors but also noise traders. We take the point of view of a rational
uninformed investor who analyzes market prices to extract relevant information. We propose
to assess the ability of this investor to extract up-to-date information from prices. In this
objective, we focus on the speed of information diffusion in prices. We envisage two different
scenarios about the impact of the French STT on this speed, as shown in figure 1.

[Please insert figure 1 about here]

In the first scenario, the STT may decrease the trading volume by noise traders in the market
more rapidly than the trading volume of informed investors. This should improve market
efficiency and therefore increase the speed of information diffusion into prices. In the second
scenario, the tax may decrease trading volume by informed investors in the market more rapidly
than the trading volume of noise traders, which may reduce the speed with which prices react
to new information.

Focusing on the STT literature, and in particular on the recent paper from Colliard and
Hoffmann (2017), we hypothesis that the STT has decreased informational efficiency as well
as liquidity. We thus assume that the prices of French stocks submitted to the STT will integrate
information with a higher delay. As far as liquidity is concerned, we assume that the STT has
shown a negative externality for the taxable stocks’ liquidity.

H1: The introduction of the French STT on August 1, 2012 delays the process of
information incorporation into prices for taxable stocks.

58
H2: The introduction of the French STT on August 1, 2012, decreases the market liquidity
of taxable stocks.

2.3 Data and Methodology

2.3.1 Data

Financial Data

Our sample consists of 101 stocks11 and concerns all French firms for which the trading
in their shares is subject to the STT implemented in August 2012. Appendix A contains the
French decree of the 12th of July 2012 listing the French firms to which the STT has been
applied. As mentioned later, we will consider a difference-in-differences methodology and we
thus need to select control groups. We consider in this study two Benchmark (control) groups
of firms for which the STT has not applied at that time. The control groups consist respectively
of German12 and Italian firms which are comparable to the main sample of French firms, and
for which investors trading their shares do not incur any STT. An additional control group
consists of the two main control groups taken together. Except for the STT, our control groups
embed firms which have similar characteristics to the French sample. The German sample
consists of the 30 German stocks of the DAX30 (main German stock index). The Italian sample
embeds the 40 Italian stocks of the FTSE MIB index (which are the 40 biggest stocks of the
Italian stock exchange).

Our choice of the control groups is a challenging decision and is thus inspired by the
existing literature. Following Capelle-Blancard and Havrylchyk (2016), Haferkorn and
Zimmermann (2013), and the European Commission working paper (2014), we consider the
Dax30 and FTSE MIB Milano indexes as our set of control groups. The choice of these indexes
is due to the convergence between our initial sample (French stocks that are subject to the tax)
and the listed firms in the aforementioned indexes. Furthermore, in order to check the relevancy
of our choice, we calculate the returns’ correlation between our initial sample and our control
groups. The correlation of returns between the French taxed stocks and Dax 30 is 92.8% over

11
We exclude from our initial sample (108 stocks) seven stocks for which information on bid
price and trading volume is missing.
12
We follow the literature and in particular the paper of Capelle-Blancard and Havrylchyk
(2016) who also consider the DAX 30 stocks as a control group of stocks not submitted to the
STT.
59
our analysis period; the correlation between our treatment group and the FTSE MIB Milano
stock returns is slightly lower than that with the Dax 30 but still high (87.97%).

Table 1 Panel A presents the list of all French firms subject to the STT together with their
market capitalization. Table 1 Panel B (Panel C) mentions the firms belonging to the DAX 30
(FTSE MIB) and their corresponding size.

[Please insert Table 1 about here]

Table 2 presents a summary of our different samples and shows that there is a high correlation
of returns between our main sample and the control one. The correlation between the returns of
French socks from our main sample and DAX 30 firms (FTSE MIB firms) is about 92% (87%).

[Please insert Table 2 about here]

Our period of analysis ranges over one year centered around the implementation of the STT.
We consider 6 months before the tax implementation (from February 2012 to July 2012) and 6
months after the tax implementation (from August 2012 to January 2013). We follow the
financial transaction tax literature and we consider our sample on a daily basis. One of the main
constraints we faced in this study is without doubt the difficulty of obtaining financial data. Our
data consists of stock closing prices data that are extracted from Datastream. However, we face
an issue of missing data, particularly on trading volumes. Therefore, in an attempt to fill missing
data we use the Eurofidai database that is specialized in European stock markets. We manage
to merge both databases information. We then compute daily returns based on these prices.

2.3.2 Methodology

Difference-in-differences Regression

In order to understand the impact of the French STT implementation on the incorporation
of information into prices, we use a difference-in-differences (DiD) methodology. We compare
the impact of the STT on some measures of information efficiency and liquidity for the group
of French stocks submitted to the STT (treatment group) and a group of non-treated stocks
which are chosen to be otherwise as close as possible. The difference-in-differences regression
is a research design, which allows estimating the impact of certain policy interventions on the
population (Ashenfelter and Card, 1985). This methodology has been popular in the financial
transaction tax literature because it is consistent with the tax design. In particular, several papers

60
of the literature analyzing the impact of the French financial transaction tax on financial market
quality indicators have used such a methodology. We can cite for instance the papers of Colliard
and Hoffmann (2017) and Gomber et al. (2016).

In this paper, we propose testing the following model:

𝑌𝑖𝑡 = 𝛽0 + 𝛽1 𝑆𝑇𝑇𝑖 + 𝛽2 𝑃𝑜𝑠𝑡𝑡 + 𝛽3 𝑃𝑜𝑠𝑡𝑡 ∗ 𝑆𝑇𝑇𝑖 + 𝜖𝑖𝑡 (1)

Where 𝑌𝑖𝑡 represents an information efficiency or a liquidity measure (as defined in the
following sub-section), 𝑆𝑇𝑇𝑖 is a dummy variable that is equal to 1 if the observation is from
the group French stocks submitted to the STT (treatment group), and 0 if the observation
concerns a control group. 𝑃𝑜𝑠𝑡𝑡 is a dummy variable taking the value of 1 if the observation is
from the period after the introduction of the STT (i.e. after August, 1st of 2012), and 0 otherwise.
The 𝛽3 coefficient is the DiD estimate of the treatment effect (our coefficient of interest). In
case there exists a significant impact of the tax on the dependent variables, then this will result
in a significant 𝛽3 coefficient. 𝜀𝑖𝑡 represents the error term. Considering a difference-in-
differences methodology allows us to compare the effects of the French STT implementation,
six months before and six months after this implementation, on different efficiency and liquidity
measures for French stocks submitted to the STT (treatment group) for and German or Italian
stocks not submitted to this tax (control groups). This methodology ensures to control for two
possible confounding effects, namely the changes in information efficiency or liquidity for
French stocks which are not linked to the STT implementation and the changes in information
efficiency or liquidity for all stocks (French, German, Italian) when the STT has been
implemented.

The Dependent Variables: information efficiency and liquidity measures

We present the variables of interest of our analysis. All these variables are computed on
the period from 1st of February 2012 and 30th of January 2013. Our objective is to assess the
impact of the STT on the informativeness of stock prices, i.e. on the ability of market prices to
transmit information to investors and thus to help rational investors have a more accurate
expectation of the stocks’ future payoffs. We thus consider a variable appraising the ability of
prices to incorporate the information, namely the Price Delay measure. As far as we know, this
paper is the first one to analyze this precise issue and to consider the impact of the STT on this
variable. For robustness test reasons we also consider the FSRV variable (Durnev et al., 2004)
which may appraise the noise prevailing on the market, and the Bid-Ask spread which is already
considered in several papers of the literature about the financial transaction tax.

61
 Colliard and Hoffmann (2017) prove that the impact of the STT on the Bid-Ask spread
is driven out by a direct impact of the STT on liquidity variables. We thus follow the literature
and also analyze the impact of the STT on some liquidity variables, namely the trading volume
and the Amihud (2002) illiquidity measure. We mention hereafter how these variables of
interest are built.

Price delay. When we realistically consider that there are informational frictions on
financial markets, observing stock prices does not allow investors to deduce all private
information possessed by some sophisticated investors of the market. The higher the
informational frictions, the lower the price informativeness, and the higher the delay with which
prices reveal relevant information to all participants of the financial market. In this paper, we
claim that the STT may have increased the delay of information incorporation into prices for
the firms submitted to the STT. We use the Hou and Moskowitz (2005) Price Delay measure,
to evaluate the impact of the STT on the process of information incorporation into prices. The
higher the Price Delay, the lower the price informativeness. Hou and Moskowitz (2005)
considered several measures to capture the average delay with which a firm’s stock price
responds to information. The market return is considered to be the relevant news to which stocks
react and which is thus incorporated into their prices. We consider the Hou and Moskowitz
(2005) “D1” measure. Our sample embeds high size firms. All else being equal, these firms are
thus submitted to lower informational frictions than small size ones. The information
incorporation of information into our sample firms is supposed to be made at the daily level.
To better detect this information process, we thus compute the Hou and Moskowitz (2005) Price
Delay measure with daily returns (instead of weekly returns13). We perform the following time-
series regressions:

𝑟𝑗,𝑡 = 𝛼𝑗 + 𝛽𝑗 𝑅𝑚,𝑡 + 𝜖𝑗,𝑡 (2)

4
(−𝑛)
𝑟𝑗,𝑡 = 𝛼𝑗 + 𝛽𝑗 𝑅𝑚,𝑡 + ∑ 𝛿𝑗 𝑅𝑚,𝑡−𝑛 + 𝜖𝑗,𝑡 (3)
𝑛=1

𝑅²(𝐸𝑞2)
𝐷1 = 1 − (3)
𝑅²(𝐸𝑞3)

13
Hou and Moskowitz (2005) compute the D1 measure with weekly returns. They justify their choice by
mentioning that they “focus on stocks with the most severe delay (frictions), whose lagged response often takes
several weeks”.

62
 Where 𝑟𝑗𝑡 is the return on stock j at time t and 𝑅𝑚,𝑡 is the return on the CRSP value-
weighted market index in day t. The D1 equals one minus the ratio between the R2 from
regression (2) and the R² from regression (3) which considers that the stock return is explained
not only by the contemporaneous returns of the market portfolio but also its 4 dates lagged
returns. For computing the stock i' s D1 measure on day t, we perform regressions (2) and (3)
over a 60 days period before day t. We then compute the ratio of the two regression R² and
subtract it from one.

As stated by Hou and Moskowitz (2005), if a stock return reacts immediately to market
news, the only significant coefficient in Regression (3) will the market return one. If the stock’s
price reacts to new market information with a lag, then some of the lag market return
coefficients will be significantly different from zero. High values of the D114 measure indicates
that high return variation comes from lagged market returns, and thus the higher is the delay
with which stocks react to market-wide news.

Firm-specific Return Variation (FSRV). Roll (1988) has been the first author to propose
the use of the idiosyncratic risk as a variable appraising information issues surrounding an asset.
He mentions that a high residual variance, and thus a high R² in regression (2) reveals the
process of information incorporation into prices or represents the existence of noise. Durnev et
al. (2004) have extended the Roll measure into a “firm specific return variation”, FSRV, based
on the following regression:

𝑟𝑖,𝑗,𝑡 = 𝛽𝑗,0 + 𝛽𝑖,𝑚 𝑟𝑚,𝑡 + 𝛽𝑖,𝑗 𝑟𝑗,𝑡 + 𝜀𝑖,𝑗,𝑡 (4)

Where 𝑟𝑖,𝑗,𝑡 is the return of the stock i over the period t, 𝑟𝑚,𝑡 is the return of the market over
period t, 𝑟𝑗,𝑡 is the return of industry j to which stock i belongs, and 𝜀𝑖,𝑗,𝑡 is an error term. One
minus the average R² from regression (1) measures the importance of firm-specific return
variation in that industry. In order to improve econometrically the relative residual variance
Durnev et al. (2004) apply a logistic transformation of 1 − 𝑅 2 form regression (4) and present
the FSRV of stock i as follows:

1−𝑅𝑖2
𝐹𝑆𝑅𝑉𝑖 = ln ( )
𝑅𝑖2

14
In what follows, the D1 measure will be simply called “Price Delay” measure for making the writing clearer.

63
For computing the stock i' s FSRV measure on day t, we perform regression (4) over a 60 days
period before day t. We then compute the 1- R² of this regression and apply the aforementioned
logistic transformation to obtain the FSRV measure.

Durnev et al. (2004), as well as numerous15 other studies in finance, consider that a higher
FSRV is associated with a higher stock price informativeness. At the opposite, a second stream
of the existing literature claims that FSRV is a measure of information asymmetry existing on
the market for a given stock. Roll (1988) is the first to claim that the idiosyncratic risk could
also reflect the noise prevailing on the market and not the asset’s price informativeness.
Following Grossman and Stiglitz (1980), and more generally rational expectations equilibrium
models, when stocks prices are noisy they reflect less information to investors. In this case, a
high FSRV measure is associated with less information revelation through prices. A certain
number of studies, presented by Clarke and Shastri (2001), employ the idiosyncratic risk as a
measure of information asymmetry. The authors show for instance that the idiosyncratic risk is
positively linked with several information asymmetry measures based on microstructure
models. In this paper we consider the argument of Roll (1988) and assume that a higher FSRV
reveals the existence of more noise surrounding a stock and is thus related to less information
efficiency.

Bid-Ask Spread. We follow the literature and we use the Bid-Ask spread as a proxy for
information asymmetry. Spreads are calculated as the difference between the bid price and the
ask price, scaled by the mid-price. Therefore, the measure is presented as follows:

𝐴𝑠𝑘𝑖,𝑡 −𝐵𝑖𝑑𝑖,𝑡
𝐵𝐴𝑆𝑖,𝑡 = [(𝐴𝑠𝑘 ] (6)
𝑖,𝑡 +𝐵𝑖𝑑𝑖,𝑡 )/2

Where 𝐴𝑠𝑘𝑖,𝑡 is the price that a buyer accept to pay for an asset (dealers’ sell price), 𝐵𝑖𝑑𝑖,𝑡 is
the price that a seller accept to sell an asset (dealers’ buy price) and the 𝐵𝐴𝑆𝑖,𝑡 represents the
Bid-ask spread of firm “i” at day “t” in percentage. A number of papers have already used the
Bid-Ask spread as a proxy for information asymmetry such as the papers by Welker (1995),
Heflin and Shaw (2000) and Daske et al. (2008).

Trading Volume. We follow Colliard and Hoffmann (2017) who have shown that the
French Transaction Tax has led to a reduced trading activity and analyze the impact of the STT

15
For instance, Morck et al. (2000) and Burlacu et al. (2005).

64
on the average daily trading volume. Therefore, we calculate the natural logarithm of the
volume log (Volume) which is presented as follows:

𝐿𝑜𝑔(𝑉𝑜𝑙𝑢𝑚𝑒) = 𝑇𝑉𝑖𝑡 × 𝑃𝑖𝑡 (7)

Where 𝑇𝑉𝑖𝑡 is the number of shares traded for the stock i on day t, 𝑃𝑖𝑡 is the closing price for
the stock i on the day t.

According to Chordia et al. (2001) this measure captures the facility to turn around a position.
We consider this variable as a proxy for market liquidity. We claim that Stocks which are traded
less frequently usually have less production of information and thus tend to show less
information efficiency.

Amihud Illiquidity Variable (2002). We consider the Amihud (2002) illiquidity

variable which is widely used in the financial literature. This illiquidity measure allows to
capture the depth and resiliency of trade for taxed stocks. The Amihud measure allow us to
observe the stock price movement that occurred by a given level of trading. This measure is
computed as the following ratio:

|𝑅𝑖𝑡 |
𝐼𝐿𝐿𝐼𝑄𝑖𝑡 = (8)
𝑉𝑜𝑙𝑖𝑡

Where 𝑅𝑖𝑡 is the return on stock i for day t and 𝑉𝑜𝑙𝑖𝑡 is the value of the trading volume for
stock i on day t.

This variable is the daily ratio of the absolute stock return to its euro volume. The author
mentions that this measure “can be interpreted as the daily price response” associated with one
euro of trading volume, “thus serving as a rough measure of price impact.”

2.4 Empirical results

2.4.1 Descriptive Statistics

In this section, we present some descriptive statistics about our variables of interest. We
are interested in the impact of the STT on the price information incorporation process of French
stocks submitted to the STT. However, as our methodology is based on a difference-in-
differences analysis, we also present descriptive statistics for our control groups, namely the
DAX 30 stocks and the FTSE MIB stocks. From Table 3, we observe that the average price

65
delay of French stocks submitted to the STT has increased after the STT implementation. This
is a first step confirming the fact that the implementation of the STT has made the French stock
prices incorporate information more slowly. The conclusion is similar for the FSRV variable
conducting us to conclude that there is more noise preventing prices from incorporating the
information. The Bid-Ask spread has rather decreased after the STT implementation. As far as
liquidity variables are concerned, the average trading activity shows a decrease. This result is
in line with the findings of Colliard and Hoffmann (2017).

[Please insert Table 3 about here]

When analyzing Table 3 Panel B and Panel C, we see that, before the STT implementation, the
average Delay and FSRV measures are smaller for DAX 30 and FTSE MIB firms than for
French firms submitted to the STT and even decrease after the implementation of the STT for
Italian firms. The picture is different for DAX 30 which has shown an increase in the Delay and
FSRV values in the period after the STT implementation in France. We interpret this behavior
of the German Market as a possible reaction of investors who anticipate a future implementation
of the STT on their own stock market.

In order to offer a graphical illustration of the STT impact on the information efficiency
measures and the liquidity variables, we plot in Figure 3 the values of these variables over the
1st of February 2012 - 30th of January 2013 time period for our sample of French firms submitted
to the STT and our sample of control groups firms. We observe a clear and progressive increase
in the Delay and FSRV variables of information inefficiency for our treatment group (French
firms submitted to the tax) after the implementation of the STT. We also observe the same
tendency for German and Italian firms making us think that investors on these markets may
also react to the French STT. German and Italian investors may consider that the
implementation of the STT in France increases the probability of the implementation of a
similar tax in their respective countries. On the opposite, the Bid-Ask spread variable doesn’t
experience the same progressive increase but only a short-time reaction the days following the
introduction of the STT.

In addition, these figures also show that, before the implementation of the STT, the
speed of information incorporation into prices for French stocks has been faster during April
2012. We can see that, at the same time, the trading volume has shown an increase. This is a
rough illustration of the possible correlation between the price delay and the Trading volume.

66
 [Please insert Figure 3 about here]

As far as liquidity variables are concerned, we observe an increase in the Amihud Illiquidity
variable after the tax implementation. We do not observe any stability in the trading volumes,
whether before the STT implementation or after. After April 2012, we can observe an obvious
decrease in trading volumes. This decrease becomes higher before August 2012 and trading
volume has reached its lowest level (over the studied period) before the beginning of August.
This seems to indicate that, just before the tax implementation, the market reacted negatively
and experienced a decrease in trading volume. These results are not surprising and are in line
with the outstanding literature stating that investors will be more willing to invest in stocks that
are not subject to the STT.

For deepening our understanding, we split our samples of French, German, and Italian firms
into three subsamples depending on their price delay before the implementation of the STT.
Even if all French firms submitted to the STT are big size companies and are thus less subject
to informational asymmetries, we consider that the firm’s level of delay before the
implementation of the STT could drive their reaction of the STT. We build three portfolios of
firms for each treatment and control group: the 30% firms with the lowest Delay before the 1st
of August 2012, the 30% firms with the highest Delay before the 1st of August 2012, and the
in-between firms. Figure 4 presents the evolution of the Delay measure for our treatment and
control groups over the 1st of February 2012 - 30th of January 2013 time period and for the three
portfolios aforementioned. We are interested in both panels A and B, which show the evolution
of the delay measure for the 30% firms with the lowest and highest price delay, respectively.
The results reveal that firms that had a higher level of delay before the tax introduction were
more impacted by the tax implementation, as shown in figure 4.

[Please insert Figure 4 about here]

Our results reveal that after the STT introduction the price delay increased progressively for all
sample firms.

Finally, we present in Table 4 Pearson correlation coefficients between the variables

used in our regression analyses for the French stocks submitted to the STT. We present this
correlation analysis over the whole period of our study (Panel A) and over the two sub-periods,
namely before (Panel B) and after (Panel C) the day of the STT implementation in France. Panel

67
A shows that, among the information asymmetry measures, the highest correlation is between
Price Delay and FSRV. The liquidity measures are less correlated with each other. The Amihud
illiquidity ratio is the measure of the less correlated with the other measures of information
efficiency. Overall, the results in Panel B and C show that the variables were more correlated
over the period prior to the tax introduction.

[Please insert Table 4 about here]

2.4.2 Difference-in-differences results

Our descriptive statistics and graphical illustrations suggest that the French STT has had
a significant impact on the delay with which stock prices respond to new information (as
appraised by the Delay measure) as well as on the noise preventing prices from incorporating
information (as measured by the FSRV variable). The STT also seems to have had an impact
on indicators of liquidity (the trading volume and the Amihud illiquidity measure). In order to
deepen our understanding of the impact of the STT on the process of incorporation of
information into prices, we rely on a difference-in-differences regression methodology. Our
treatment sample consists of the French firms submitted to the STT. Our control samples are
alternatively the DAX 30 German stocks and the FTSE MIB Italian stocks. This methodology
allows us to precisely assess the impact of the STT on our variables of interest. As mentioned
previously, this methodology has been popular in the financial transaction tax literature because
it is consistent with the French tax design. Several papers of the literature (Meyer et al, 2015;
Colliard and Hoffmann, 2017) analyzing the impact of the French financial transaction tax on
financial market quality indicators have used such a methodology.

For each measure, we run the following regression:

𝑌𝑖𝑡 = 𝛽0 + 𝛽1 𝑆𝑇𝑇𝑖 + 𝛽2 𝑃𝑜𝑠𝑡𝑡 + 𝛽3 𝑃𝑜𝑠𝑡𝑡 ∗ 𝑆𝑇𝑇𝑖 + 𝜖𝑖𝑡 (1)

Where 𝑌𝑖𝑡 represents an information efficiency or a liquidity measure (as defined in the
following sub-section), 𝑆𝑇𝑇𝑖 is a dummy variable that is equal to 1 if the observation is from
the group French stocks submitted to the STT (treatment group), and 0 if the observation
concerns a control group. 𝑃𝑜𝑠𝑡𝑡 is a dummy variable taking the value of 1 if the observation is
from the period after the introduction of the STT (i.e. after August, 1st of 2012), and 0 otherwise.
The 𝛽3 coefficient is the DiD estimate of the treatment effect (our coefficient of interest). In

68
case there exists a significant impact of the tax on the dependent variables, then this will result
in a significant 𝛽3 coefficient. 𝜀𝑖𝑡 represents the error term.

Table 5 presents our results for the information efficiency variables and for our two
samples of control groups. The scarcity in using the price delay measure inspired our research
to consider this measure and examine the impact of the STT on the speed of information
diffusion into prices. We observe that the 𝛽3 coefficient is positive and highly significant at the
1% level when the Delay variable is considered and whichever the control group (we however
note that the coefficient has a higher value when the FTSE MIB control group is considered16).
This result confirms that the implementation of the STT in France has increased, for the taxable
stocks, the delay with which their prices incorporates information. This further indicates that a
rational uninformed investor observing stocks prices to deduce information and taker better
investment decisions will not manage to deduce up-to-date information since the latter is
incorporated into prices with a higher delay.

The 𝛽3 coefficient is positive and highly significant at the 1% level when the FSRV variable is
considered and whichever the control group17. This indicates that French stocks submitted to
the STT have shown higher levels of FSRV after the tax implementation. This result proves
that the level of noise is higher for French taxable stocks after the implementation of the STT.
Following the rational expectation equilibrium literature, we deduce that the prices of French
taxable stocks may be less informationally efficient after the STT implementation.

When the Bid-Ask spread is concerned, the 𝛽3 coefficient is positive but not significantly
different from zero. This result allows us to conclude that the implementation of the STT has
not increased the Bid-Ask spread of taxable stocks. It should be noted that even though we
merged both control groups – as shown in table 5 column 3, the results confirm our previous
findings – particularly, on the three information asymmetry variables.

[Please insert Table 5 about here]

16
This strongest result for FTSE MIB comparatively to the DAX 30 could find an explanation in the fact that
Germany launched together with France the initial concept of a European proposal for the tax on August 16,
2011. The implementation of the STT in France can thus have been interpreted by German investors as
increasing the probability of an implementation in Germany of a similar tax as the French one.
17
We however note that the coefficient has a much higher value when the FTSE MIB control group is
considered.

69
 In order to better understand the impact of the STT implementation on the speed of
information diffusion into prices, as measured by the price delay, we divide our sample into
three sub-samples – hereafter, portfolios – based on their daily average price delay: the 30%
firms with the lowest Delay before the 1st of August 2012, the 30% firms with the highest Delay
before the 1st of August 2012, and the in-between firms. We then perform our difference-in-
differences regression (1) with the Delay measure as our dependent variable. We distinguish
firms that have initially a low speed of information incorporation (high Delay) and the ones for
which the information is incorporated quickly into the price. Our intuition is that firms which
stocks already react slowly to information may be even more impacted by the STT. This is
precisely the result we obtain. As exposed in Table 6, the 𝛽3 coefficient is the biggest and the
most significant for stocks, which already have a high delay before the STT implementation.

[Please insert Table 6 about here]

Concerning the liquidity measures, our difference-in-differences results for trading volumes
confirm that the STT has negatively affected the taxable stocks’ market liquidity. The 𝛽3
coefficient, exposed in Table 7, is negative and significant at the 1% level. This finding is in
line with Baltagi et al. (2006) and Pomeranets and Weaver (2011) who put forward a negative
impact of the tax on market liquidity. More recent papers (Meyer et al., 2015 and Haferkorn
and Zimmermann, 2013) have analyzed the impact of the French securities transaction tax on
market liquidity and have also confirmed the negative impact of this tax on market liquidity.
When considering the Amihud illiquidity measure, we observe a positive and significant (at the
10% level) 𝛽3 coefficient when the control sample is the DAX 30. This result tends to confirm
that the implementation of the STT in France has reduced the market liquidity of French taxable
stocks. We however notice a non-significant 𝛽3 coefficient when the FTSE MIB is the control
sample. It should be noted that when we merged both control groups – as shown in table 7
column 3, the results on liquidity measures were insignificant.

[Please insert Table 7 about here]

2.5 Conclusion

70
 The implementation of the French tax on financial transactions, on the 1st of August
2012 has had a wide range of effects on the quality of financial markets. This paper analyses
the impact of the French Securities Transaction Tax (STT) on different measures of market
quality. We shed the light on the link between informational efficiency and tax implementation.
The contribution behind our study is inspired by the lack of studies that have examined the
impact of the tax on information efficiency. Therefore, we expect that our research will allow
understanding better this impact. We hypothesized that this tax may disturb the information
efficiency and, in particular, the speed of information diffusion into prices for French stocks
that are subject to the tax. More precisely, we ask the following question: do rational investors
who observe market prices in order to extract some information about the future payoffs of
risky stocks manages to learn more rapidly the relevant news since the implementation of the
STT? The existing literature about information efficiency has analyzed the impact of the STT
on microstructure variables like the Bid-Ask spread and the return autocorrelation based on
intraday data. We rather consider a direct measure appraising the delay with which prices reflect
information to investors of the financial market. Given that information asymmetry and market,
liquidity are closely related, we analyze further the impact of the French STT on market
liquidity.
Our results confirm our research hypothesis to a large extent. Thanks to a difference-in-
differences analysis considering alternatively the DAX 30 German stocks and the MIB Italian
stocks as control groups, we show that the French STT has delayed the process of information
incorporation into prices for taxable stocks. We also show that French stocks submitted to the
STT have seen their level of noise, as measured by the FSRV variable, increase. We conclude
that analyzing only the impact of the STT on the Bid-Ask spread does not allow putting forward
such results.
At the same time, we observed a significant negative impact of the FTT on market liquidity
measures, such as the trading volume and the Amihud ratio.
To conclude, our results confirmed our expectations, based on the recent literature, that
the French STT disturbs the information efficiency and liquidity of the French market. We
believe that the tax may have driven away informed traders, more than noise traders. This could
be explained by the fact that an increase in transaction costs (by implementing a new tax on the
market) makes the transactions more costly for investors, and lowers the net profitability of
trading. This may lead informed investors to trade less in the market and to hold their securities
for a longer period, in order to reduce their transaction costs over time. Future research is

71
advised to examine the impact of the STT on stock price returns in order to assess the investors’
reaction to the STT implementation.

72
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Appendix A

Decree of 12 July 2012 listing firms that are located in France and have a market capitalization
exceeding one billion euros and the trading in their shares are subject to the Tax.

JORF n°0163 du 14 juillet 2012

« Texte n°17

Arrêté du 12 juillet 2012 établissant la liste des sociétés dont le siège social est situé en
France et dont la capitalisation boursière dépasse un milliard d’euros au 1er janvier
2012 en application de l’article 235 ter ZD du code général des impôts

NOR: EFIE1227995A

ELI:https://www.legifrance.gouv.fr/eli/arrete/2012/7/12/EFIE1227995A/jo/texte

Publics concernés : redevables de la taxe sur les acquisitions de titres de capital ou assimilé,
dépositaire central soumis au 3° du II de l’article L. 621-9 du code monétaire et financier et ses
adhérents.

Objet : liste des sociétés dont le siège social est situé en France et dont la capitalisation boursière
dépasse un milliard d’euros au 1er janvier de l’année d’imposition.

Entrée en vigueur : le texte entre en vigueur le lendemain de sa publication.

Notice : le I de l’article 235 ter ZD du code général des impôts, tel qu’il résulte du I de l’article
5 de la loi n° 2012-354 du 14 mars 2012 de finances rectificative pour 2012, instaure une taxe
sur les acquisitions de titres de capital ou assimilé dès lors qu’ils sont admis aux négociations

77
sur un marché réglementé français, européen ou étranger, qu’ils donnent lieu à un transfert de
propriété et que ce titre est émis par une société, dont le siège social est situé en France et dont
la capitalisation boursière dépasse un milliard d’euros au 1er janvier de l’année d’imposition.
Le présent arrêté récapitule la liste des sociétés, dont le siège est situé en France et dont la
capitalisation boursière dépasse un milliard d’euros au 1er janvier 2012.

Références : le présent arrêté peut être consulté sur le site Légifrance

(http://www.legifrance.gouv.fr).

Le ministre de l’économie et des finances et le ministre délégué auprès du ministre de

l’économie et des finances, chargé du budget,

Vu le code général des impôts, notamment le I de son article 235 ter ZD ;

Vu la loi n° 2012-354 du 14 mars 2012 de finances rectificative pour 2012, notamment son
article 5,

Arrêtent :

Article 1

Les sociétés dont le siège social est situé en France et dont la capitalisation boursière dépasse
un milliard d’euros au 1er janvier de l’année 2012 mentionnées à l’article 5 de la loi n° 2012-
354 du 14 mars 2012 de finances rectificative pour 2012 sont les suivantes :

78
 CASINO FINANCIERE MAUREL ET
ACCOR SILIC
GUICHARD ODET PROM

FONC.DES METROPOLE
ADP CFAO SOCIETE GENERALE
REGIONS TV

AIR FRANCE - FONCIERE

CGG MICHELIN SODEXO
KLM LYONNAISE

FRANCE
CHRISTIAN
AIR LIQUIDE TELECOM NATIXIS SOMFY SA
DIOR
(Orange)

ALCATEL- FROMAGERIES SUEZ

CIC NEOPOST
LUCENT BEL ENVIRONNEMENT

CLIMENTS
ALSTOM GDF SUEZ NEXANS TECHNIP
FRANCAIS

CNP
ALTAREA GECINA NOM ORPEA TF1
ASSURANCES

GROUPE PERNOD
APRR COLAS THALES
EUROTUNNEL RICARD

CREDIT
AREVA HAVAS PEUGEOT TOTAL
AGRICOLE

ARKEMA DANONE HERMES INTL PPR (Kering) UNIBAIL-RODAMCO

DASSAULT PUBLICIS
ATOS ICADE VALEO
AVIATION GROUPE SA

DASSAULT
AXA ILIAD RALLYE VALLOUREC
SYSTEMES

REMY
BIC EDENRED IMERYS VEOLIA ENVIRON.
COINTREAU

BIOMERIEUX EDF INGENICO RENAULT VICAT

BNP PARIBAS
EIFFAGE IPSEN REXEL VILMORIN & CIE
ACT.A

BOLLORE ERAMET JC DECAUX SA. RUBIS VINCI

BOURBON ESSILOR INTL. KLEPIERRE S.E.B. VIRBAC

79
BOUYGUES EULER HERMES LAFARGE SAFRAN VIVENDI

BUREAU LAGARDERE
EURAZEO SAINT GOBAIN WENDEL
VERITAS S.C.A.

CAMBODGE EUTELSAT
LEGRAND SANOFI ZODIAC AEROSPACE
NOM. COMMUNIC.

SCHNEIDER
CAP GEMINI FAURECIA L'OREAL
ELECTRIC

CARREFOUR FDL LVMH SCOR SE

80
 Table 1: List of treatment and control groups

This table presents in Panel A the list of French firms subject to Security Transaction Tax
implemented in France on 12th August 2012 and their corresponding market capitalization (in
EUR mm).

Panel B presents the list of the DAX 30 German firms and their corresponding Market
Capitalization (in EUR mm). Panel C presents the list of the FTSE MIB 40 Italian firms and
their corresponding Market Capitalization (in EUR mm).

Panel A: French stocks affected by the FTT

Firms Market Cap Firms Market Cap Firms Market Cap

SANOFI 97,738 CASINO GUICHARD 8,673 VALEO 3,294

TOTAL 90,354 ILIAD 8,122 S.E.B. 3,125

LVMH 68,027 BOLLORE 8,061 EULER HERMES 3,072

L'OREAL 67,532 CNP ASSURANCES 7,966 EIFFAGE 2,820

BNP PARIBAS ALCATEL-

56,373 ACCOR 6,554 2,738
ACT.A LUCENT
AXA 32,735 BOUYGUES 6,448 ERAMET 2,732

DANONE 32,280 ADP 6,075 EURAZEO 2,658

SCHNEIDER AIR FRANCE -

30,644 KLEPIERRE 6,054 2,557
ELECTRIC KLM

EUTELSAT
AIR LIQUIDE 27,926 5,809 INGENICO 2,523
COMMUNIC.
CAMBODGE
EDF 27,363 CAP GEMINI 5,775 2,502
NOM.
HERMES INTL 26,614 EDENRED 5,636 PEUGEOT 2,219
PERNOD
25,843 THALES 5,536 IPSEN 2,190
RICARD
SOCIETE
24,434 GECINA NOM 5,379 CFAO 2,178
GENERALE
CHRISTIAN
22,770 ARKEMA 5,270 VICAT 2,074
DIOR
PPR (Kering) 21,862 AREVA 5,249 TF1 1,944

SUEZ
VIVENDI 20,911 5,095 VILMORIN & CIE 1,882
ENVIRONNEMENT

VINCI 20,680 VALLOUREC 5,010 HAVAS 1,868

81
FRANCE
FONCIERE
TELECOM 20,131 VEOLIA ENVIRON. 4,963 1,791
LYONNAISE
(Orange)

CREDIT
18,113 REMY COINTREAU 4,960 ORPEA 1,753
AGRICOLE
UNIBAIL-
16,795 ATOS 4,891 METROPOLE TV 1,705
RODAMCO
SAINT GOBAIN 16,725 JC DECAUX SA. 4,879 NEOPOST 1,533

ESSILOR INTL. 15,642 ZODIAC AEROSPACE 4,866 SILIC 1,493

SAFRAN 14,681 REXEL 4,758 BOURBON 1,458

RENAULT 14,499 BIC 4,266 VIRBAC 1,440

CARREFOUR 14,237 SCOR SE 4,200 RALLYE 1,359

LAFARGE 14,107 WENDEL 4,157 ALTAREA 1,313

FROMAGERIES
MICHELIN 12,386 CIC 4,131 1,285
BEL

SODEXO 11,058 IMERYS 3,934 SOMFY SA 1,250

PUBLICIS
10,760 COLAS 3,890 NEXANS 1,179
GROUPE SA
NATIXIS 10,591 FINANCIERE ODET 3,728 FDL 1,172
DASSAULT
10,474 FONC.DES REGIONS 3,654
SYSTEMES
ALSTOM 10,320 CGG 3,628
TECHNIP 9,051 ICADE 3,565

LEGRAND 9,040 GROUPE EUROTUNNEL 3,527

DASSAULT
9,010 LAGARDERE S.C.A. 3,448
AVIATION

82
 Panel B: DAX 30 Companies

Firms Market Cap Firms Market

Cap

Siemens
66,988.90 Adidas AG 14,080.25
AG

Fresenius SE &
BASF SE 65,368.13 11,362.42
Co. KGaA

BAYER Henkel AG & Co.

60,325.84 10,841.57
AG KGaA Vz

Fresenius Medical
SAP AG 54,476.74 Care AG & Co. 10,840.39
KGaA St

Deutsche Börse
Allianz SE 47,678.06 8,680.24
AG
Daimler AG 40,982.19 Continental AG 6,957.56
Deutsche ThyssenKrupp
30,276.28 6,916.96
Bank AG AG

Infineon
E.ON SE 26,696.79 6,684.67
Technologies AG

Deutsche
Deutsche
Telekom 25,407.84 6,624.07
Lufthansa AG
AG
Volkswagen
24,576.05 Merck KGaA 6,520.27
AG Vz

HeidelbergCement
Linde AG 24,548.71 6,433.99
AG

BMW AG Commerzbank
23,370.54 6,308.99
St AG

Münchener K+S
21,673.64 6,088.02
Rück AG Aktiengesellschaft

Beiersdorf
RWE AG St 15,282.95 6,076.62
Aktiengesellschaft

Deutsche
14,965.41 LANXESS AG 5,623.67
Post AG

83
 Panel C: FTSE MIB 40 Companies

Firms Market Cap Firms Market Cap

ENI 63,986.74 PRYSMIAN 3,388.81

ENEL 27,080.73 CAMPARI 3,352.03

UNICREDIT 24,535.81 MEDIOLANUM 3,245.78

INTESA SANPAOLO 22,174.68 UBI BANCA 3,193.99

GENERALI ASS 19,941.06 LOTTOMATICA 3,170.53

TENARIS 17,959.98 TOD'S 3,084.64

LUXOTTICA GROUP 16,044.72 PARMALAT 3,057.48

SNAM 12,316.26 BCA MPS 2,629.51

BANCO
TELECOM ITALIA 11,629.40 2,475.93
POPOLARE
AUTOGRILL
FIAT INDUSTRIAL 11,455.47 2,342.77
SPA
SAIPEM 9,078.16 FINMECCANICA 2,337.87
MEDIASET
ATLANTIA 8,866.50 2,158.58
S.P.A
ENEL GREEN POWER 7,244.50 BUZZI UNICEM 2,050.93

BCA POP EMIL

TERNA 6,384.74 1,926.42
ROMAGNA

STMICROELECTRONICS 5,703.75 AZIMUT 1,831.05

BCA POP
FIAT 5,474.64 1,827.97
MILANO
EXOR 5,448.68 IMPREGILO 1,644.32
MEDIOBANCA 4,655.70 DIASORIN 1,526.38
PIRELLI E C 4,196.41 A2A 1,394.77
SALVATORE
3,495.97 ANSALDO STS 1,165.94
FERRAGAMO

84
 Table 2: Correlation analysis between French STT firm’s returns and control groups
returns

This table presents the Pearson coefficient of correlation of daily returns between the French
STT firms and the considered control groups. Our treatment group is composed of 101 French
firms that are subject to the financial transaction tax. Our control groups consist in the Dax 30
and FTSE MIB 40 firms, which are comparable to our initial sample in terms of firm size.

Treatment group Control group Returns correlation

101 French stocks above 1 bln EUR DAX 30 92.80 %

101 French stocks above 1 bln EUR FTSE MIB 40 87.97 %

85
 Table 3: Descriptive statistics

This table presents descriptive statistics for the variables used in our regression analyses before
and after the day of the STT implementation in France. More precisely, the “Before” period
goes from the 1st of February to the 31st of July. The “After” period goes from the 1st of August
2012 to the 30st of January 2013. We present values for the variables for the French stocks
submitted to the STT in Panel A. We also present values of the variables for our control groups
i.e. for the DAX 30 control group (the FTSE MIB control group) in Panel B (Panel C). Wilcoxon
test is used to compare the means difference before and after the tax implementation.
*, **, *** indicates a coefficient statistically different from zero at the 10%, 5%, 1% level,
respectively.

Panel A: French stocks submitted to the STT

Information Efficiency Measures

Min 1st quarter Median Mean 3rd quarter Max

Before

Price delay 0.00049 0.04122 0.09172 0.179 0.20142 0.99999

FSRV -2.0389 -0.648 -0.0269 0.2418 0.8012 9.4676

BA spread 0 0.00041 0.00109 0.00385 0.00258 0.28539

After

Price delay 0.00036 0.06409 0.14665 0.24945 0.33952 1

FSRV -2.5617 -0.2915 0.5229 0.7057 1.3862 10.7776

BA spread 0 0.000446 0.00123 0.003992 0.002857 0.630999

Difference of
Means

Price delay 0.0704***

FSRV 0.4632***

BA spread 0.00085*

86
Liquidity measures

Min 1st quarter Median Mean 3rd quarter Max

Before

Volume 2.124 6.543 7.052 6.934 7.606 9.043

Amihud 0 2.300e-10 8.500e-10 7.113e-08 3.600e-09 7.000e-05

After

Volume 1.953 6.317 6.913 6.800 7.489 8.765

Amihud 0 2.200e-10 8.300e-10 5.712e-08 3.780e-09 1.134e-04

Difference of
Means

Volume 0.134***

Amihud 1.40e-08

87
 Panel B: DAX 30 German stocks (control group)

Information Efficiency Measures

Min 1st quarter Median Mean 3rd quarter Max

Before

Price delay 0.00099 0.0305 0.06578 0.09794 0.12965 0.75342

FSRV -1.5945 -0.8063 -0.2925 -0.2564 0.1237 2.4742

BA spread 0.0000148 0.0024662 0.0032354 0.003397 0.0037868 0.3641377

After

Price delay 0.00049 0.05121 0.09 0.14445 0.17397 0.99986

FSRV -1.5942 -0.48225 0.0779 0.08911 0.6184 3.43405

BA spread 0.0000067 0.0020203 0.0029297 0.0030256 0.0037453 0.0168567

Difference of
Means

Price delay 0.0465***

FSRV 0.1673***

BA spread 0.000371***

Liquidity measures

Min 1st quarter Median Mean 3rd quarter Max

Before

Volume 3.568 4.8047 5.5940 5.1704 6.0714 8.0537

Amihud 0 7.800e-09 2.750e-08 1.086e-06 1.685e-07 1.624e-03

After

Volume 3.554 4.7899 5.5442 5.0842 6.0032 8.1057

Amihud 0 6.600e-09 2.070e-08 5.232e-07 1.298e-07 4.935e-04

Difference of
Means

Volume 0.0862*

Amihud 5.63e-07

88
 Panel C: FTSE MIB Italian stocks (control group)

Information Efficiency Measures

1st
Min Median Mean 3rd quarter Max
quarter

Before

Price delay 0.00069 0.03639 0.07496 0.11378 0.13978 0.95144

FSRV -1.88401 -0.60622 -0.18285 -0.01861 0.53176 4.03713

BA spread 0 0.002811 0.00955 0.012433 0.018182 0.119649

After

Price delay 0.00037 0.0254 0.0627 0.10433 0.14035 0.90272

FSRV -2.7115 -0.8402 -0.2199 -0.2174 0.4466 2.451

BA spread -0.0462249 0.0005551 0.0006887 0.0008936 0.0010536 0.0289855

Difference of
Means

Price delay 0.00945***

FSRV 0.1987***

BA spread 0.01154***

Liquidity measures

Min 1st quarter Median Mean 3rd quarter Max

Before

Volume 4.650 6.872 7.225 7.295 7.642 9.084

Amihud 0 2.230e-10 7.480e-10 7.183e-09 2.160e-09 1.870e-05

After

Volume 5.739 6.867 7.233 7.280 7.624 9.276

Amihud 0 1.670e-10 5.460e-10 1.165e-09 1.420e-09 2.750e-08

Difference of
Means

Volume 0.015

Amihud 6.018e-09

89
 Table 4 : Correlation analysis

This table presents Pearson correlation coefficients between the variables used in our
regression analyses for the French stocks submitted to the STT. We present, in Panel A, a
correlation analysis over the whole period. Panel B and C present the correlations before and
after the day of the STT implementation in France. More precisely, the “Before” period goes
from the 1st of February to the 31st of July. The “After” period goes from the 1st of August to
the 30st of January. Coefficients in bold are significant to at least the 5% level.
Panel A: Correlation analysis for the French stocks submitted to the STT over the whole period

Variables Delay FSRV BA Volume Amihud

Delay 1 0.9564 -0.1294 -0.2547 0.0058

FSRV 1 -0.1554 -0.2155 -0.0057

BA spread 1 -0.0974 0.0075

Volume 1 -0.1596

Amihud 1

Panel B: Correlation analysis for the French stocks submitted to the STT over the “Before”
period

Variables Delay FSRV BA Vol Amihud

Delay 1 0.9584 -0.1895 0.2214 -0.0990

FSRV 1 -0.2223 0.2797 -0.0712

BA spread 1 -0.2249 0.0813

Volume 1 -0.2059

Amihud 1

90
Panel C: Correlation analysis for the French stocks submitted to the STT over the “After”
period

Variables Delay FSRV BA Vol Amihud

Delay 1 0.9094 -0.2643 0.1986 0.0572

FSRV 1 -0.2741 0.1814 0.0268

BA spread 1 -0.0205 -0.0226

Volume 1 -0.1945

Amihud 1

91
 Table 5: The impact of the French tax on Information Efficiency

This table provides the difference-in-difference tests for information efficiency measures. The
sample ranges over one year: 6 months before the tax implementation (from February 2012, to
July 2012), and 6 months after the tax implementation (from August 2012, to January 2012).
Post-adopter is our coefficient of interest, it is a dummy variable which takes the value of 1
after the tax introduction if the firm is subject to the FTT, 0 otherwise. The table presents OLS
regressions and t-statistics are presented in parentheses. *, **, *** indicates a coefficient
statistically different from zero at the 10%, 5%, 1% level, respectively.

(1) (2) (3)

Variables French Taxed stocks French Taxed stocks French Taxed stocks
Dax30 FTSE MIB Dax30 + FTSE MIB
Price Delay
0.0465*** -0.0118** 0.0154***
Post
(9.15) (-2.53) (4.78)
0.0810*** 0.0653*** 0.0727***
Adopter
(19.83) (17.04) (25.01)
0.0239*** 0.08232*** 0.0550***
Post*adopter
(4.15) (15.20) (13.41)
Nb. Obs 33,930 34,974 42,543
adjusted R2 0.051 0.0603 0.0697
FSRV
0.3454*** -0.1988*** 0.0558**
Post
(11.67) (-7.12) (2.92)
0.4982*** 0.2604*** 0.3716***
Adopter
(20.95) (11.43) (21.57)
0.0118*** 0.6626*** 0.4080***
Post*adopter
(3.53) (20.60) (16.78)
Nb. Obs 33,930 34,974 42,543
adjusted R2 0.0581 0.0605 0.070
BAS
-0.0003 0.0007** 0.0002
Post
(-1.06) (2.27) (1.02)
0.0004 -0.0024*** -0.0011
Adopter
(1.61) (-9.11) (-5.58)
0.0005 -0.00061 -0.00008
Post*adopter
(1.30) (-1.59) (-0.30)
Nb. Obs 32,587 33,818 41,155
adjusted R2 0.004 0.0062 0.0016

92
 Table 6: The impact of the French STT on the Delay Measure

This table provides the difference-in-difference tests for the Delay measure. The sample ranges
over one year: 6 months before the tax implementation (from February 2012, to July 2012),
and 6 months after the tax implementation (from August 2012, to January 2012). Post-adopter
is our coefficient of interest, it is a dummy variable which equals 1 after the tax introduction if
the firm is subject to the FTT, 0 otherwise. This table provides the difference-in-difference
results for the three subsamples of French stocks submitted to the STT (the 30% firms with the
lowest Delay before the 1st of August 2012, the 30% firms with the highest Delay before the 1st
of August 2012, and the in-between firms). The table presents OLS regressions and t-statistics
are presented in parentheses. *, **, *** indicates a coefficient statistically different from zero
at the 10%, 5%, 1% level, respectively.

(1) (2)

Percentiles of
delay French Taxed stocks French Taxed stocks
Dax30 FTSE MIB
<30 %
0.0155*** -0.0109***
Post
(17.63) (-13.59)
0.0066*** 0.0011*
Adopter
(9.28) (1.81)
0.0011 0.0277***
Post*adopter
(1.12) (29.78)
Nb. Obs 10,443 10,703
adjusted R2 0.142 0.193
40%
0.0298*** -0.0234***
Post
(14.76) (-12.37)
0.02935 0.0079***
Adopter
(18.08) (5.16)
0.0373*** 0.0906***
Post*adopter
(16.29) (6.49)
Nb. Obs 13,046 13,568
adjusted R2 0.311 0.318
> 70 %
0.0976*** 0.0023
Post
(10.18) (0.26)
0.2215*** 0.2007
Adopter
(28.70) (7.18)
0.0305** 0.1259***
Post*adopter
(2.81) (12.08)
Nb. Obs 10,441 10,703
adjusted R2 0.199 0.229

93
 Table 7: The impact of the French tax on stock market liquidity

This table provides the difference-in-difference tests for liquidity measures. The sample ranges
over one year: 6 months before the tax implementation (from February 2012, to July 2012),
and 6 months after the tax implementation (from August 2012, to January 2012). Post-adopter
is our coefficient of interest, it is a dummy variable which equals 1 after the tax introduction if
the firm is subject to the FTT, 0 otherwise. The table presents OLS regressions and t-statistics
are presented in parentheses. *, **, *** indicates a coefficient statistically different from zero
at the 10%, 5%, 1% level, respectively.

(1) (2) (3)

Variables French Taxed stocks French Taxed stocks French Taxed stocks
Dax30 FTSE MIB Dax30 + FTSE MIB
Volume
-0.0861*** -0.1421 -0.0501**
Post
(-3.34) (-0.80) (-2.67)
1.7631*** -0.3610*** 0.5722***
Adopter
(5.59) (-24.86) (3.74)
-0.0470*** -0.1190*** -0.0831
Post*adopter
(-1.61) (-5.78) (-3.46)
Nb. Obs 32,997 35,529 42,926
adjusted R2 0.197 0.2199 0.0452
ILLIQ
-5.63e-07** -6.02e-09 -2.50e-07
Post
(-2.48) (-0.28) (-1.87)
-1.02e-06*** 6.39e-08*** -4.10e-07***
Adopter
(-5.60) (3.58) (-3.41)
5.49e-07** -8.00e-09 2.36e-07
Post*adopter
(2.14) (-0.32) (1.38)
Nb. Obs 32,604 35,343 42,926
adjusted R2 0.0012 0.0006 0.0003

94
 Figure 1:

The impact of FTT on the speed of information transmission by prices

Scenario 1 Scenario 2

Proportion of
Traders in the Proportion of
Market Traders in the
STT STT
Market
- The STT decrease
- Securities noise traders - Securities
- Decrease informed
Transaction Tax proportion in the Transaction Tax traders proportion in
market the market

Market efficiency
Accelerate Slow
Information Market efficiency Information - Decrease market
efficiency (Informed
- Improve market - A delayed investors may not
- Decrease the efficiency (less trade if the benefit
delayed process of their information
noise)
is not enough to
process
compensate the
transaction costs)

95
 Figure 2

Illustration of the STT impact on information efficiency variables and on liquidity variables

Figure 3 illustrates the evolution, over the 1st February 2012-31st January 2013 time period, of
our different variables of interest. Panel A consists in graphical illustrations for the Delay, the
FSRV and the Bid-Ask Spread measures. Panel B presents the evolution of the liquidity
variables we consider. For each graph, we consider our group of French firms submitted to the
STT as well as our control groups, namely the DAX 30 and the FTSE MIB stocks.

Panel A: Information efficiency measures

Average Delay
Average FSRV

96
 Average Amihud Average Volume
Average BA

97
Panel B: Liquidity measures
 Figure 3

Illustration of the STT impact on the Delay variables for three portfolios of stocks

Figure 3 illustrates the evolution, over the 1st February 2012-31st January 2013 time period, of
the Delay measure. We build three portfolios of firms for each treatment and control group:
the 30% firms with the lowest Delay before the 1st of August 2012, the 30% firms with the
highest Delay before the 1st of August 2012, and the in-between firms. Panel A consists in
graphical illustrations for the 30% firms with the lowest Delay, Panel B consists in in graphical
illustrations for the 30% firms with the highest Delay, Panel C consists in in graphical
illustrations for “in-between” firms.
Panel A: Evolution of the Delay measure for the 30% firms with the lowest Delay

Panel B: Evolution of the Delay measure for the 30% firms with the highest Delay

98
Panel C: Evolution of the Delay measure for the “in-between” firms

99
Chapter 3

100
 Chapter 3: Market Reaction to the Financial Transaction Tax

Adoption in Europe

Abstract

T
his paper studies the European stock market reaction to a collection of events
associated with the adoption of a Financial Transaction Tax (FTT) at the
European level. We assess the impact of the FTT implementation process for
eight European countries that are involved in the European Union FTT project. We first analyze
the equity market returns’ reaction to events increasing the probability of an FTT adoption in
Europe. This allows us to investigate the investors’ perceptions of the FTT future externalities.
Based on firms’ characteristics (i.e. information asymmetry, liquidity, and an institutional
indicator) we classify firms into three different groups in order to assess whether particular firm
characteristics explain the cross-sectional variations in firms’ return reactions. Our results show
that events which increase the probability of the tax adoption in Europe are associated with a
negative abnormal return for concerned stocks. Moreover, we find that the magnitude of the
returns’ reaction was not the same across all the European firms. In particular, investors react
less negatively for stocks exposed to high information risk and high liquidity risk. Indeed, for
these stocks, investors may expect the tax to drive out noise traders from the market and thus
improve the market quality.

Keywords: European Financial Transaction Tax, Asset Returns, Information efficiency,

Liquidity.

JEL classification: G12, G14, G18, G28

101
3.1 Introduction

During the recent period, and as a result of the 2008 financial crisis, several Financial
Transaction Tax (FTT) projects have been presented. On the 28th of September, 2011, the
European Commission published a Draft Directive proposing a Financial Transaction Tax
implementation across all EU Member States as one of the responses to the 2008 financial
crisis. According to the European Commission, the financial sector played a prominent role in
triggering the crisis. Proponents of an FTT, like Tobin (1984), Stiglitz (1989), and Jürgen et al.
(2012) state that the objective of this tax is to stabilize the market and correct market failures
that contributed to the financial crisis. First, an FTT, as any tax, will generate significant
revenues for the governments. Second, this tax would reduce speculative transactions, and
alleviate speculative trading activities which have not any social or economic value. On the
other hand, opponents have their own different arguments and they consider that an FTT,
although reducing speculative trading, could at the same time alleviate or stop productive
trading. This would reduce market liquidity and raise the firms’ cost of capital. Recent studies
that assess the impact of the French Securities Transaction Tax (STT), such as Capelle-Blancard
and Havrylchyk (2016), Meyer et al. (2015), and Colliard and Hoffmann (2017), show that the
STT could have negative externalities in terms of market liquidity and information efficiency.
These papers however do not show which type of traders is precisely driven away from the
market.

Our purpose in this paper is to investigate the European stock market response to the
adoption of the FTT in France and to additional events which increase its adoptions in other
European countries. More precisely, we analyze eleven events that may be considered by
investors as increasing the probability of an FTT adoption in Europe. We study whether the
information related to each event that could contribute to a tax adoption is reflected in stock
prices. It is unclear how investors have reacted to these events. It is possible that investors
would react positively to these events if they consider that the tax may decrease the trading by
noise traders in the market, which will greatly improve market efficiency (according to the
proponents of the tax) and thus reduce market volatility, stabilizing by that the market. On the
other hand, it is possible that investors would react negatively to the tax, if they consider that
an increase in transaction costs would make the transactions more costly, and lower the net
profitability of trading; or if they assume that the tax would hurt the financial market quality.
In this case, the project of the tax could have discouraged investors to hold European stocks

102
even before the tax implementation. One of the objectives of the FTT is to reduce the number
of noise traders present on the market in order to alleviate speculative transactions that
destabilize the market. In this context, it is worth considering the work of Black (1986) who
introduced the beneficial effects of “noise” on financial markets. This author reaches the
conclusion that noise trading is necessary to the existence of liquid markets.

The literature has fairly examined the impact of the tax on the functioning of the financial
markets. As discussed earlier, there is no consistency concerning the tax effect. It seems
important to understand the perception of investors (how they react), and how they anticipate
externalities (concerning the tax adoption). Do they perceive the tax as having positive or
negative externalities?

To obtain a clear perception of investors’ expectations regarding the FTT implementation

in Europe, we examine in this paper three-day market-adjusted returns for European firms,
centered on 11 events that we consider as affecting the FTT adoption (we identify 11 events
between 2011 and 2013 that we consider as increasing the likelihood of an FTT implementation
in Europe). All firm's stock returns may react with a different magnitude to these events, we
thus analyze, in a second time, to which extent some particular firm characteristics explain the
cross-sectional variation in firms’ return reactions.

Our paper contributes to the existing literature on the financial transaction tax topic.
Previous studies examined the existing linkage between the FTT implementation and different
market microstructure measures of market quality. As far as we know, this paper is considered
one of the few attempts to empirically examine the linkage between the FTT probable
implementation and equity market returns. In addition, our study is based on European evidence
as we consider the European FTT project and we focus on eight different European countries.
We summarize our contributions in this paper as follows. Our first contribution is to study
investors’ perceptions of the European FTT externalities by analyzing equity market returns
reaction to events increasing the probability of an FTT adoption in Europe. Our second
contribution is to explore whether particular firm characteristics are a determinant of the firm’s
asset returns response to these events. Our third contribution is methodological. Our
methodology follows that of Zhang (2007) and Armstrong et al. (2010) who investigate the
impact of SOX and IFRS adoption on stock market returns. We claim that their methodological
framework is particularly relevant for analyzing the impact of the European FTT related events.
We thus conduct a similar event study in our particular context. We analyze several events that

103
we consider increasing the probability of tax adoption in Europe. There is a literature gap
concerning the use of an event study methodology in empirical papers which investigate the
impact of Tobin taxation. As far as we know, only the paper of Bratis et al. (2017) discussed
the aforementioned gap, but the approach used in their paper is different from our work. These
authors only study the impact of the FTT's first announcement on August, the16th of 2011 on
bond and equity volatility.

A particular constraint for analyzing the impact of the FTT in European stock markets
resides in the fact that this tax is not yet applicable in Europe (although there are similar taxes
such as the French securities Transaction Tax which is applied locally in France). This justifies
our choice to analyze events that increase the probability of an FTT adoption rather than only
events of the real adoption of an FTT. The event related to the implementation of the FTT in
France of course belongs to our events set since this implementation is perceived by European
investors as increasing the probability of an FTT implementation in their own country.

The rest of the paper is structured as follows. Section 2 presents a literature review, where
we first introduce the most known examples of FTT in Europe and then expose our research
hypotheses. Section 3 presents and discusses the events that are considered as affecting the
likelihood of an FTT adoption in Europe. Section 4 presents our data set, determines our
research design, and explains our variables measurement. Section five contains descriptive
statistics and presents our main empirical results. Finally, section six provides a summary of
our results and concludes the paper.

3.2 Literature Review

3.2.1 Financial Transaction Tax popular examples

The tax on financial transactions is not a new idea; this levy has been implemented in many
countries and is still enforced today in several leading marketplaces. After the quite recent
financial crisis of 2008, public opinion as well as financial institutions renewed their interest in
FTTs as a tool to help regulate and stabilize the market. In this paragraph, we are presenting a
brief overview of the three most known FTT examples or paradigms. We also provide some
examples of states that have implemented such a tax.

104
The Stamp Duty (United Kingdom)

A well-known example of FTT is the British stamp duty. The history of this tax goes back
to the 1600s and has continued non-stop ever since. The British stamp duty brings to the country
revenues between £2.5 billion and £4 billion every year. The reason why this tax was successful
is the application of the place of issuance principle. This means that it is the nationality of the
company issuing the shares that geographically determines the tax’s scope, rather than the
nationality of the intermediaries that carry out the transaction. This makes it difficult to avoid
the tax.

The Sweden Financial Transaction Tax

In 1984, Sweden introduced a tax on financial transactions. The Swedish government

decided to introduce a 0.5% tax on the purchase or sale of shares. This FTT was a failure,
according to Umlauf (1993), who studied the effects of transaction taxes on the behavior of
Swedish equity returns. More than half of the trades in shares in Swedish large capitalization
listed companies migrated to London, which was tax-free at that time. This failure was due to
the tax only being applied to transactions carried out by Swedish intermediaries, contrary to the
United Kingdom tax, which made it very easy to avoid. For foreign investors, it was indeed
easy to use non-Swedish brokers for their transactions in order to avoid the tax. The transactions
simply migrated from one marketplace to another, and there was no impact of the tax on market
volatility, as was initially expected.

Financial Transaction Tax proposed by the EU Commission

The proposed financial transactions tax at a European level was discussed for the first time
in 2009 by the European Commission. The discussions occasioned within the G20 about the
introduction of a levy on financial transactions. The European Commission started to discuss
different scenarios for taxing the financial market in 2010, alongside discussion at the G20
level. These actions were largely endorsed by the European parliament.

On 28 September 2011, the European Commission's announced the adoption of a general

EU FTT proposal in all European Union countries. The first objective was to avoid the
fragmentation of the European market and the possible competition that could occur due to

105
many uncoordinated national taxes on financial transactions. Table 1 exhibits the list of
European countries with their corresponding national financial transaction type of taxes.

[Please insert Table 1 about here]

Second, this project of tax represents an important resource for the European Union and
could generate significant revenues for the governments. The final objective – which is claimed
as very important – is to discourage financial transactions that negatively impact the efficiency
of financial markets and to reduce speculative transactions, in addition, to alleviate speculative
trading activities with no social or economic value.

Two types of markets, whose products are considered the most speculative, are affected by
this tax. The first one consists of the stocks and bonds markets, in which each transaction would
be taxed up to 0.1%. The second one consists of derivative products operating in the short term
which would be taxed up to 0.01%. Implementing this tax is based on the residence principle.
The main condition for a transaction to be considered as taxable is that at least one part of the
transaction is established in an EU Member State and that a financial institution – which is a
party to the transaction or which participates in the transaction as an intermediary – is
established in the EU Member States.

The Member States have expressed different views on the subject. The idea that this levy
constitutes an important resource for the European Union and, perhaps a component of a future
fiscal union, did not receive unanimous support. In the absence of a united agreement, 11
Member States (Austria, Belgium, Estonia, France, Greece, Germany, Italy, Luxembourg,
Spain, Slovakia, and Slovenia) issued on October 9, 2012, a request for enhanced cooperation
on this subject. These member states demanded the authorization to establish a common system
of FTT under enhanced cooperation, which is similar to the initial proposal of the European
Commission (based on the same objectives and scope). On 22 January 2013, the Commission
authorized the implementation of enhanced cooperation. No vote has taken place yet; however,
only six countries (Bulgaria, Luxembourg, Malta, United Kingdom, Sweden, and the Czech
Republic) indicated a desire to oppose this project by abstaining from voting on the enhanced
cooperation. These countries (in particular the UK) consider that the implementation of a
European FTT will have an indirect negative impact on financial market efficiency.

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The French FTT

France was one of the first supporters of a tax on financial transactions, and together with
Germany, launched the initial concept of a European proposal for a tax on August 16, 2011. On
August 1, 2012, France launched a tax on financial transactions that charges 20 basis points on
the purchase of shares issued by French companies with a market capitalization that exceeds
1 billion EUR. The French Tax is composed of three separate taxation concepts, namely: (1) a
tax on acquisitions of French equity securities and similar instruments, known as the Securities
Transaction Tax (STT), (2) a tax on high-frequency trading, and (3) a tax on naked sovereign
credit default swaps.

Similar to the United Kingdom tax, the French FTT application (the concept) of the place
of issuance principle gives it a solid base. The French tax rate was 0.2 percent in August 2012.
It is worth mentioning that France had already introduced in the past (in 1893) the “Impôt sur
les Operations de Bourse (IOB)”. This tax was similar to the Swedish FTT and was easy to
avoid, as it only applied to transactions carried out by French intermediaries. From the 2000s
onwards, it only generated revenues of between €200 million and €300 million a year and was
canceled in 2008.

The Italian FTT

The French experience concerning the FTT influenced the regulators in Italy. One year
after the French tax implementation, Italy established its own FTT project. The Italian tax is
composed also of three separate taxation concepts, namely: (1) a tax on Italian shares and
similar instruments, (2) a tax on derivatives, and (3) a tax on high-frequency trading. The tax
on Italian securities was introduced in March 2013, with a tax rate of 0.1 percent on trading that
takes place on the regulated market and 0.2 percent of the value of the transaction to other
transactions. The design of the Italian STT was somehow similar to the French STT, given that
both projects are similar in their tax design. For instance, in Italy, the tax is applied to Italian
shares of firms that have a market capitalization of over 500 million euros.

3.2.2 Prior research and hypotheses development

Theoretical literature about the FTT impact on financial markets is rare and does not reach
a consensus about the effects of the FTT. For this reason, there have been many attempts to
solve the debate empirically. Little is known about how investors perceived the possibility of
an FTT introduction. In the following, we review several important papers that assess the impact

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of the tax on the functioning of financial markets. In addition, we discuss more deeply studies
that investigate the relationship between the tax and the stock market returns – more precisely,
what is the impact of the tax on stock market returns.

The impact of the FTT on the quality of financial markets

There exist two main streams in the literature concerning the impact of an FTT on the
quality of financial markets. Until today, there are however still two opposing points of view in
the literature about the FTT outcomes, with some arguments in the favor of each side.

Proponents of the tax such as Stigliz (1989) and Summers and Summers (1989), consider that
the tax decreases market volatility because it discourages the trading activity of noise traders.
However, Roll (1989) investigates stock return volatility in 23 countries and finds no proof that
there is a relation between volatility and transaction taxes. Moreover, Umlauf (1993) studies
equity returns in Sweden between 1980 and 1987 and finds no evidence neither that volatility
declined in response to the introduction of taxes.

Jones and Seguin (1997) come to a similar conclusion and their results complement
Umlauf (1993). These authors study the 1975 introduction of lower, negotiated commissions
on US national stock exchanges. They show that following the reduction in the commission
proportion of transaction cost, the trading volume of shares in NYSE increased and this
reduction in the transaction costs decreased stock return volatility.

Saporta and Kan (1997) study the impact of the UK stamp duty on the volatility of stock
prices and do not find a relationship between the tax and price volatility. Pomeranets and
Weaver (2011) analyze the impact of the changes that have occurred between 1932 and 1981
in the New York state STT (nine changes in the tax rate between 1932 and 1981) on stock
liquidity and volatility. They compare stocks traded on the New York Stock Exchange (NYSE)
to stocks traded on the National Association of Securities Dealers Automated Quotations
(NASDAQ). The authors show that there is not any statistically significant impact of the tax on
market volatility and no relationship between changes in the tax rate and market volatility.
These authors however show a negative impact of the tax on trading volume and market
liquidity.

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 One of the few studies that find an inverse relationship between the FTT and market
volatility is the study conducted by Foucault et al. (2013). They analyze the French regulatory
reform that has increased the transaction cost on the futures market for highly liquid stocks and
which has thus increased the cost of speculative transactions for retail investors (investors who
are considered to be noise traders in the market). The authors employ a difference-in-differences
methodology and prove that the increase in transaction cost has reduced the volatility of the
concerned stocks.

Deng et al. (2014) examined the impact of an FTT on the efficiency of financial markets.
The authors study the impact of transaction costs on financial price volatility. They consider
that an FTT may have different consequences for immature and mature markets. They study
Chinese stocks listed in Hong Kong and mainland China through the different stages of growth
in the Chinese market. They show that a financial transaction tax can achieve its objective and
reduce excessive volatility in an immature market where transactions are dominated by noise
traders or retail investors. On the other hand, in a more mature market where investors are more
fundamental and have access to information (mutual funds, hedge funds...), higher transaction
costs may discourage informed investors from trading more than noise traders.

In the same vein, Chokor (2018) studies the impact of the French FTT implementation
in 2012 on different measures of market quality and shows in his paper that the introduction of
the French FTT on August 1, 2012 delays the process of information incorporation into prices
for taxable stocks. This could be explained by the fact that an increase in transaction costs
makes the transactions more costly for investors, and lowers the net profitability of trading,
which may lead informed investors to trade less in the market and to hold their securities for a
longer period, in order to reduce their transaction costs over time.

Recently, several studies (Haferkorn and Zimmermann, (2013); Meyer et al. (2015);
Becchetti et al. (2014); Capelle-Blancard and Havrylchyk (2016); Colliard and Hoffmann,
(2016); Hvozdyk and Rustanov, (2016)) investigate the impact of the STT implemented in 2012
and 2013 in France and Italy on the functioning of financial markets. The majority of the studies
reveal a negative impact on trading volumes after the tax implementation in France and Italy
(trading volumes have decreased after the tax introduction). This impact was interpreted in two
opposing perspectives. Proponents of the tax justify that if the trading volumes are to decrease,
we should know which type of traders have driven away from the market. That is, if the tax is
discouraging the activity of noise traders who destabilize the market, then this represents an

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advantage given that this is one of the most important objectives of the tax proposal. However,
opponents of the tax consider that the tax is discouraging both traders (noise and fundamental
traders) from the market. Even more, they consider that the activity of noise traders is important,
in order to increase the liquidity of financial markets given that their activity motivates
fundamental traders to trade. Therefore, it could also alleviate or stop productive trading which
might reduce market liquidity and raise the firms’ cost of capital. Hence, the important is
whether the tax could decrease speculation without affecting negatively the functioning of
financial markets.

The aforementioned studies show some inconsistency in their answer concerning the
impact of the tax on different measures of market quality. Bechetti et al. (2014), for example
show a decrease in price volatility as a consequence of the FTT implementation. This paper
uses intraday data to analyze taxed French firms, whose share trading is subject to the tax, and
find a significant decrease in volatility. Capelle-Blancard and Havrylchyk (2016) show a
decline in trading activity after the implementation of the French tax in 2012, but claim this
does not affect market volatility measures.

Hvozdyk and Rustanov (2016) assess the impact of the financial transaction tax
announcement and the tax introduction in Italy. The authors investigate the impact of the tax
on the liquidity and volatility of the Italian stocks that are subject to the tax. The results show
that the announcement of the tax has positively affected stock market liquidity; however, there
was a decrease in market liquidity after the tax introduction. According to the authors, the
results could be explained by the fact that the trading costs of the stocks that are subject to the
tax has decreased after the tax announcement and then significantly increased after the tax
implementation on the 1st March 2013. As regards the volatility of affected stocks, the results
show no significant variation before and after the tax was announced or implemented.

Many authors argue that these types of studies have a methodological limitation, as they
use a simple difference of means tests for comparing market outcomes before and after the tax
implementation. This methodology neglects other market changes that could confound the
actual effects of the tax.

The impact of the FTT on stock market returns

Even though studies that examined the impact of the tax on stock market returns are rather
scarce, they show significant results indicating a negative impact of the tax implementation on

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the market returns. Umlauf (1993) studies the introduction of the 1% securities transaction tax
in Sweden in 1984 and its subsequent increase to 2%. He found that Swedish Equity indexes
fell by 5.3% in the first 30 days after the Swedish FTT was introduced, and 2.2% on the first
trading day of 1984. Moreover, Umlauf concludes that after the tax increase in 1986, 60% of
the trading volume migrated to London, which was tax-free at that time. Saporta and Kan (1997)
study the response of the UK equity market after the announcement of an increase in the Stamp
duty rates and found that the stock market index declined by 3.3 %. Hu (1998) examines 14
changes in transaction taxes in four Asian countries and finds that the return on the
announcement date is -0.6 % in Korea and -1.6 percent in Taiwan.

Table 2 offers a summary of the group of studies that examined the impact of the tax on
stock market returns. We intended to concentrate on studies that investigate the relationship
between the tax and stock market returns in order to show the negative relationship concluded
by most of these studies. In this paper, we propose to examine such a relationship in a deeper
way by following a different methodology that has never been used by the previous studies. For
instance, while scholars have fairly examined different aspects of the tax implementation, the
impact on stock market returns has so far been neglected. Moreover, there is a scarcity in studies
that investigate the impact of tax implementation in the European market. We focus on events
increasing the probability of an FTT adoption in eight European countries and we hypothesize
that investors perceive these events as bad news, pushing thus the price of the corresponding
stocks down. Thus, we formalize our final hypothesis as follows:

H1: Events that increase the probability of tax adoption in Europe are associated with a
negative abnormal return for the concerned stocks.

[Please insert Table 2 about here]

[Please insert Figure 1 about here]

Figure 1 summarizes the investor’s reaction to possible scenarios following events that
increase the probability of a tax adoption. As previously alluded in the introduction, the market
could react in different ways. For instance, after the event has occurred, investors could react
or not to this event. We claim that this reaction/no reaction situation depends on the efficiency
of the market and on the level of information transmitted upon each event. If we assume that
investors are to receive such information, they could react either positively or negatively. They

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react positively if they consider that this event is good news (for instance if they think that the
tax will improve market efficiency and thus reduce market volatility, stabilizing the market).
On the other hand, and in terms of risk, the tax could discourage fundamental traders or
informed investors more than noise traders, leading to a higher (rather than lower) volatility on
the financial markets and less information efficiency. In addition, we cannot ignore the fact that
the tax may increase liquidity risk since speculative transactions may have a stabilizing effect
on the financial market because it increases assets’ liquidity. Therefore, according to the
aforementioned arguments, an implementation of a Financial Transaction Tax could first
decrease the number of shares that are traded in the market and consequently decrease the
assets’ liquidity. An additional reason behind the negative reaction of investors is expressed in
terms of costs and profitability. That is if they consider that an increase in transaction costs
make the transactions more costly, and lower the net profitability of trading. In this case, the
project of the tax could have discouraged investors to hold European stocks even before the tax
implementation.

In the second part of our article, we assume that the magnitude of the returns’ reaction to
tax related events will not be the same across all firms. We claim that some firms’ characteristics
may increase this impact. In other words, we analyze which firm characteristic could explain a
more significant reaction (in absolute value) to the tax adoption.

H2: Some firm characteristics may mitigate or amplify (in absolute value) the stock returns
reaction to events increasing the probability of a tax adoption in Europe. These characteristics
concern information asymmetry and liquidity issues, as well as the legal context of the
considered firm.

Choosing and assessing these characteristics is not straightforward. For appraising these
characteristics, we choose a set of variables used in the literature that shows a strong relation
with our topic of study. We suggest that these characteristics could be appraised by different
and complementary variables: information asymmetry measures can be assessed by the firm
Book-to-market ratio, Firm Size, Firm-Specific Return Variation (FSRV), and Price Delay; the
illiquidity can be assessed by the Amihud illiquidity measure, and the institutional context of a
firm can be appraised by the legal enforcement indicator.

According to the literature, there is an obvious disagreement about the impacts of FTTs on
information efficiency. Opponents of an FTT, like Grundfest and Shoven (1991), and Kupiec
(1996) argue that an FTT could discourage fundamental traders or informed investors more

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than noise traders. They also consider that speculative transactions have a stabilizing effect on
the financial market because it increases assets liquidity.

Chokor (2018) studies the impact of the French FTT implementation in 2012 on different
measures of market quality and shows in his paper that the introduction of the French FTT on
August 1, 2012 delays the process of information incorporation into prices for taxable stocks.
In other words, an increase in transaction costs increases the delay with which stock prices react
to new information and affects informational efficiency. The FTT thus increases the
information risk for uninformed investors. In this case, the tax is supposed to have a negative
impact on the market efficiency which in turn will increase the information asymmetry. If
investors anticipate this market reaction following the implementation of the FTT, they will
perceive it as bad news.

On the other hand, proponents of an FTT like Tobin (1984), Stiglitz (1989), and Summers
and Summers (1989) have their own different arguments. They consider that noise traders
whose actions are not based on the information are the main factor behind financial markets
destabilization. They suggest that the tax will have a positive impact on market efficiency since
it will decrease the information asymmetry by driving away noise traders from the market.
Therefore, if the market rather anticipates this effect, the events increasing the probability of an
FTT adoption in Europe should be considered as good news,

In this study, we assume that the investor’s perception of the impact of the FTT depends
on the level of information asymmetry surrounding and asset. If a firm is submitted to high
informational asymmetries, the tax may be perceived by investors as a way of driving noise
traders out of the market and improving market efficiency. On the opposite, if the market of a
stock is not noisy and thus already efficient, the implementation of the tax may rather be seen
as driving out informed traders from the market. In this case, investors could perceive the tax
as even worse news. We formalize our hypothesis as follows:

H2a: Cumulative abnormal return (CMAR) is less negative when information asymmetry
is larger.

Papers that investigate the impacts of the tax on market liquidity are scarce. However, the
majority of the studies show that liquidity is worsened after the implementation of the tax.
Proponents of the tax consider that an FTT lowers market liquidity by making each trade more
costly. The reason is simply that it is a tax and because market forces respond to it by providing

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fewer and lower quality trading opportunities. If the market anticipates this impact of the tax
on liquidity, investors will consider that the tax will increase liquidity risk on the market and
that it may increase even more this liquidity risk for already illiquid stocks. We thus formalize
our hypothesis as follows:

H2b: Cumulative abnormal return (CMAR) is more negative when the stock is less liquid.

Since our sample is composed of firms from eight different countries, we use an
institutional indicator to take into consideration the traditions and institutions by which
authority in a country is exercised. Concerning this variable, it is clear from the literature that
investors will assume a positive impact of the tax when there is good governance in the country.
We follow Leuz et al. (2003) through implementing the ‘legal enforcement’ variable in order
to assess the variation of the reaction across countries. We consider that when there is a good
application of laws, an efficient judicial system, and a low level of corruption, investors could
believe that the application of any new tax or regulation will decrease the risk related to the
concerned market (i.e. where the tax has been implemented), and correct the market failures. In
light of this, we formalize our final hypothesis as follows:

H2c: Cumulative abnormal return (CMAR) is less negative when there is good legal
enforcement in the country of the stock’s market.

3.3 Financial Transaction Tax Adoption Events

The process of tax adoption consumed a lot of time and went through several stages. In
order to examine the stock market reaction following news on the FTT, we identify 11 events
between 2011 and 2013 that increase the probability of tax adoption and could affect the
investors’ behavior. Our purpose is to assess how the events affected investors’ expectations
and how this translates in stocks returns on financial markets. Our intention in this paper is to
investigate how investors react to the probable implementation of a European STT by studying
the stock market returns, and thus deduce how investors interpret the possible externalities if
the tax.

The first event is September 28, 2011, when the president of the EC, Jose Barroso, launched
an official plan to implement a tax on financial transactions in the European Union. As we
mentioned before the Commission’s main goals were: (1) to make sure that financial institutions

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make a fair contribution to covering the cost of the recent crisis; (2) to unify taxes on financial
transactions in the European Union; (3) to discourage risky trading activities that do not enhance
the efficiency of financial markets; and (4) to provide an additional source of revenues for the
European Union. We use September 28, 2011, as our first event because this date is considered
as the first official announcement for a tax on the financial transaction in the EU.

France was one of the first supporters of a tax on financial transactions; it didn’t wait for
other member states to agree. On January 1st, 2012, France launched the first announcement
for a French FTT. The proposal applies a tax of 0.1% on the purchase of shares issued by French
companies with a market capitalization that exceeds 1 billion EUR.

On January 23, 2012, one week before the official announcement, the frontrunner in the
French elections, François Holland, launched his campaign slogan of “My enemy is the world
of finance”. Since Francois Holland was the candidate that had a great chance of winning the
Presidential election, investors could have anticipated strong financial regulations, which could
have impacted the investors’ decision to buy or hold French stocks for a longer period. On
January 30, 2012, the French FTT was officially announced for August 2012, and President
Nicolas Sarkozy suggested a tax rate of around 0.1 - 0.2%.

On July 4, 2012, the French government officially increased the tax rate from 0.1% to
0.2%. Finally, on August 1st, 2012 the French FTT came into force. The French proposal had a
design distinct from the EU proposal. The French proposal applies a 0.1% tax only to equity
securities issued by French companies with a market capitalization that exceeds 1 billion euros.
Moreover, the proposal applies a 0.01 percent to high-frequency trading (HFT).

The process of incorporating a tax on financial transactions in the EU has been marked by
ups and downs and has led to the division of countries into two opinions, either in favor of or
against the tax. On October 9, 2012, 11 EU member states (Austria, Belgium, Estonia, France,
Germany, Greece, Italy, Portugal, Slovakia, Slovenia, and Spain) proceeded with the
introduction of a unified EU FTT through Enhanced Cooperation in their countries. These
countries announced their consent to implement an FTT between themselves in the form of
Enhanced Cooperation. The EC accepted the project and submitted it to the European Council,
which approved it on the 22nd of January, 2013. At this date, the European Commission adopted

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the proposal and authorized the 11 EU members to implement the enhanced cooperation project
in their countries18.

After the EC enhanced cooperation, the Financial Transaction Tax on equities came into
force in Italy on March 1st, 2013. The design of the Italian FTT is similar to the design of the
French tax; it is only for company shares with a minimum of 500 million EUR. The Financial
Transaction Tax on derivatives and high-frequency trading came into force in Italy on the 2nd
of September, delayed from the 1st of July.

As mentioned previously, we considered that each event from these eleven ones is seen by
investors as increasing the probability of adopting the tax in each of the European countries
under study. We also consider that adopting a national STT in a given country (such as the
French tax, which was introduced in August 2012) would increase the possibility of adopting a
European STT. Figure 2 displays the eleven selected events in our study.

[Please insert Figure 2 about here]

3.4 Data and Research Methodology

3.4.1 Data

The main goal of this study is to investigate investors’ perceptions related to an FTT
adoption by examining European firms’ equity return reactions to 11 events. In this paper, we
employ two approaches to measure investors’ reactions to the adoption of an FTT in Europe.
We first carry out an event study methodology to precisely assess the market reaction to these
events on the European market. In the second part of our article, we ask whether particular firm
characteristics could explain cross-sectional variations in firms’ return reactions. From the eight
European countries that are involved in the European Union FTT project, and for which event
returns are available for all the 11 events, firms having a market capitalization greater than one
million euros are selected to form the initial sample on which the study is conducted. It is by
no means of a coincidence that we consider eight countries in our study, given that we choose
the countries that agreed to participate in the enhanced cooperation (i.e. the EC Enhanced
Cooperation on the 22nd of January, 2013). Besides, through revising the employed tax design

18
European Parliament News, https://www.europarl.europa.eu/news/en. "Eleven EU Countries Get
Parliament's All Clear for a Financial Transaction Tax"

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in several European countries, we observe a consistency concerning the firms that are subject
to this type of tax. For instance, with respect to France, the tax was applied to French shares
issued from French companies that have a market capitalization that exceeds 1 billion euros.
Similarly, with respect to Italy, the tax was applied to Italian shares issued from Italian
companies that have a market capitalization that exceeds 500 million euros. Building on this,
we argue that the application of the European tax could, to a certain extent, be applied to
companies with a large market capitalization. Our final sample consists of 407 firms distributed
over eight European countries that have a market capitalization that exceeds one billion euros.
The considered firms are a subset of the major financial indices in Europe (e.g. SBF120, Dax30,
IBEX35, etc.). The following is our procedure for selecting these firms. For each of our sample
countries, we chose the national stock market index19. Our main condition of firm selection is
that the chosen company must have a market capitalization exceeding one billion euros. Thus,
the firms that display a market capitalization higher than one billion euros were selected. We
obtain a total of 407 firms that satisfy our condition.

We obtain daily closing prices data between the years of 2011 and 2013 from Datastream.
Table 3 provides the sample categorized according to the country.

[Please insert Table 3 about here]

3.4.2 Research Methodology

Event study

We conduct our study around the dates of regulation events. We use a three-day event-window
and, for each firm included in our sample, we compute its return centered on the event date.
Then for each date, we compute the Raw Return of European firms which are the three-day
value-weighted return centered on the event date. Following Campbell et al. (1997), we market
adjust raw returns to alleviate the confounding effects of global news occurring alongside our
event dates. To apply this methodology, the MCSI ex-Europe index is chosen to market adjust
the returns, and this is done by subtracting the three-day returns to the MSCI ex-Europe index
from the Raw Return. Armstrong et al. (2010)20 choose a market index that does not take into

19
Except for France and Germany, we chose firms from several known indices, including the national index.
20
It should be noted that Armstrong et al. (2010) studied the European stock market reaction to IFRS adoption.

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consideration the European firms (Dow Jones STOXX 1800 ex Europe). Following Armstrong
et al. (2010), we search a similar index which is the MSCI world index that excludes the
European firms (MSCI World ex Europe). The choice of the index was challenging, we choose
the MSCI World ex-Europe index that reflects the performance of equities of 8 from 23
developed countries. Figure 3 demonstrates the calculation process of the abnormal returns.

Our research methodology is based on a sufficient degree of equity market efficiency in the
sample countries to guarantee that information about each event is reflected fairly in share
prices during the period of the event. We consider that equity prices reflect unbiased
expectations about the costs and benefits of adopting a financial transaction tax given the
available information. We conduct a t-test in order to test whether the mean of the eleven
portfolio returns differs from 0.

[Please insert Figure 3 about here]

Cross-sectional Analysis

In the second part of our empirical analysis, we focus on testing whether firm
characteristics explain cross-sectional variations in the market reaction to the FTT adoption
events. In other words, we analyze if there is a variation between the firms’ reactions due to
their different characteristics. A difficulty is encountered in the literature for the identification
of different proxies that could be the cause of the cross-sectional variation witnessed in the
firms’ reactions. To reach our objective, we estimate the following equation:

𝐶𝑀𝐴𝑅𝑗,𝑒 = 𝛽0 + 𝛽1 𝐵𝑀𝑗,𝑒 + 𝛽2 𝑆𝑖𝑧𝑒𝑗,𝑒 + 𝛽3 𝐴𝑚𝑖ℎ𝑢𝑑𝑗,𝑒 + 𝛽4 𝐹𝑆𝑅𝑉𝑗,𝑒

+ 𝛽5 𝐷𝑒𝑙𝑎𝑦𝑗,𝑒 + 𝛽6 𝐿𝑒𝑔𝑎𝑙𝐸𝑛𝑓𝑗,𝑒 + 𝜖𝑖𝑡 (1)

Where CMAR is the firm’s cumulative market-adjusted return, measured as the three-day
return centered on the event date minus the three-day return to the MSCI ex-Europe index.

The independent variables are the firms’ characteristics. We consider the Book to Market
ratio (BM), the Firm Size (Size), the Price Delay (Delay), the Firm-specific Return Variation
(FSRV), the Amihud (2002) illiquidity measure (Amihud), and a Legal Enforcement indicator
(LegalEnf). The choice of these variables is based on the objective of the regulators and the
possible impact (risk) that such regulation could have on the quality of financial markets. We
classify our independent variables into three groups or three different types of characteristics,
namely (1) information asymmetry, (2) liquidity, (3) institutional country indicator.

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 Our first group (BM, Size, Delay, FSRV) consists of information asymmetry variables. This
choice is due to several reasons: first, as discussed earlier, one of the main objectives of such a
tax is to improve the efficiency of financial markets by reducing the number of noisy
transactions by reducing the activity of speculative traders. In addition, the opponents of the tax
argue that the tax could discourage fundamental traders or informed investors more than noise
traders, leading to higher (rather than lower) volatility on the financial markets and less
information efficiency. Thus, we consider this group in order to see if the considered variables
mitigate or amplify (in absolute value) the stock returns reaction. We claim that if a given
stock’s market is very noisy, the tax may discourage noise traders rather than informed traders.
On the opposite, if a given stock’s market is efficient, proving the existence of numerous
informed traders on the market, the tax could discourage informed traders rather than noise
traders. We thus make the hypothesis that investors react more negatively to the FTT possible
implementation for a given stock when its financial market is efficient (i.e. less submitted to
informational asymmetries) and less negatively when the stock’s market is submitted to large
information asymmetries.

The second group of characteristics concerns the Amihud (2002) illiquidity measure.
Undeniably, liquidity risk is an important indicator which, according to the tax opponents, plays
a major role in stabilizing the financial market. Colliard and Hoffmann (2017) prove that the
impact of the STT on the Bid-Ask spread is driven out by a direct impact of the STT on liquidity
variables. Our intention from considering this group is to investigate the impact of liquidity on
the stock returns reaction. We hypothesis that investors may consider that the FTT will hurt the
market liquidity and will thus react more negatively to its implementation for stocks whose
liquidity is already low.

Finally, the third group consists in an institutional country indicator (Legal Enforcement) which
is extracted from Leuz et al. (2003). Since our sample is composed of firms from eight different
countries, we used this institutional indicator to take into consideration the traditions and
institutions by which authority in a country is exercised. Our aim from this indicator is to
capture to what extent this factor could mitigate the reaction of investors regarding any new
regulation across the countries under study in our sample. This measure includes the efficiency
of the judicial system, an assessment of rule of law, and the level of corruption in countries. We
explain further in detail this measure. Our hypothesis is that investors who expect the
implementation of any new regulation in the countries under study to work effectively react
less negatively to the FTT.

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Group 1: Information asymmetry variables:

As the degree of information asymmetry is not directly observable, there are several variables
proposed in the literature to measure the information asymmetry surrounding an asset. In our
study, we consider some measures that are popular in the literature, in which we discuss further
in details:

Book-to-market: This measure has been widely used among scholars as a proxy for
information asymmetry (Abosede et al. (2011)), which is the ratio between the book value of
equity and the market value of equity. A higher book to market ratio indicates good performance
and expected growth.

Firm size: according to the literature, the use of firm size as a proxy of information
asymmetry can be justified by referring to Atiase (1985), Freeman (1987), Bamber (1987),
Llorente et al. (2002), Chae (2005), etc. Indeed, the information asymmetry level in small firms
is higher than in Large firms (Chae, 2005). In addition, the low number of insiders in small
firms results in high amounts of internal information and wide bid-ask spread (Demsetz, 1986).
Therefore, we consider the logarithmic returns as a proxy for firm size.

Price Delay: We use the Hou and Moskowitz (2005) Price Delay measure, to evaluate
the process of information incorporation into prices. The higher the Price Delay, the lower the
price informativeness. Hou and Moskowitz (2005) considered several measures to capture the
average delay with which a firm’s stock price responds to information. The market return is
considered to be the relevant news to which stocks react and which is thus incorporated into
their prices. We consider the “D1” measure. The incorporation of information into our sample
firms is supposed to be made at the daily level. To better detect this information process, we
compute the Hou and Moskowitz (2005) Price Delay measure with daily returns (instead of
weekly returns21). We perform the following time-series regressions:

𝑟𝑗,𝑡 = 𝛼𝑗 + 𝛽𝑗 𝑅𝑚,𝑡 + 𝜖𝑗,𝑡 (2)

4
(−𝑛)
𝑟𝑗,𝑡 = 𝛼𝑗 + 𝛽𝑗 𝑅𝑚,𝑡 + ∑ 𝛿𝑗 𝑅𝑚,𝑡−𝑛 + 𝜖𝑗,𝑡 (3)
𝑛=1

21
Hou and Moskowitz (2005) compute the D1 measure with weekly returns. They justify their choice by
mentioning that they “focus on stocks with the most severe delay (frictions), whose lagged response often takes
several weeks”. In our analysis, we rather consider large capitalization firms which are known to be submitted to
lower informational asymmetries.

120
 𝑅²(𝐸𝑞2)
𝐷1 = 1 − (3)
𝑅²(𝐸𝑞3)

Where 𝑟𝑗𝑡 is the return on stock j at time t and 𝑅𝑚,𝑡 is the return on the CRSP value-
weighted market index in day t. The D1 equals one minus the ratio between the R2 from
regression (2) and the R² from regression (3) which considers that the stock return is explained
not only by the contemporaneous returns of the market portfolio but also its 4 dates lagged
returns. For computing the stock i ‘s D1 measure on day t, we perform regressions (2) and (3)
over a 60 days period before day t. We then compute the ratio of the two regression R² and
subtract it from one.

FSRV: our model also includes the firm-specific return variation (FSRV). Roll (1988) has
been the first author to propose the use of the idiosyncratic risk as a variable appraising
information issues surrounding an asset. He mentions that a high residual variance, and thus a
high R² in regression (2) reveals the process of information incorporation into prices or
represents the existence of noise. Durnev et al. (2004) have extended the Roll measure into a
“firm-specific return variation”, FSRV, based on the following regression:

𝑟𝑖,𝑗,𝑡 = 𝛽𝑗,0 + 𝛽𝑖,𝑚 𝑟𝑚,𝑡 + 𝛽𝑖,𝑗 𝑟𝑗,𝑡 + 𝜀𝑖,𝑗,𝑡 (4)

Where 𝑟𝑖,𝑗,𝑡 is the return of the stock i over the period t, 𝑟𝑚,𝑡 is the return of the market over
period t, 𝑟𝑗,𝑡 is the return of industry j to which stock i belongs, and 𝜀𝑖,𝑗,𝑡 is an error term. One
minus the average R² from regression (1) measures the importance of firm-specific return
variation in that industry. In order to improve econometrically the relative residual variance
Durnev et al. (2004) apply a logistic transformation of 1 − 𝑅 2 form regression (4) and present
the FSRV of stock i as follows:

1−𝑅𝑖2
𝐹𝑆𝑅𝑉𝑖 = ln ( )
𝑅𝑖2

For computing the stock i ‘s FSRV measure on day t, we perform regression (4) over a 60 days
period before day t. We then compute the 1- R² of this regression and apply the aforementioned
logistic transformation to obtain the FSRV measure.

121
Durnev et al. (2004), as well as numerous22 other studies in finance, consider that a higher
FSRV is associated with higher stock price informativeness. On the opposite, a second stream
of the existing literature claims that FSRV is a measure of information asymmetry existing on
the market for a given stock. Roll (1988) is the first to claim that the idiosyncratic risk could
reflect the noise prevailing on the market and not the asset’s price informativeness. Following
Grossman and Stiglitz (1980), and more generally rational expectations equilibrium models,
when stock prices are noisy they reflect less information to investors. In this case, a high FSRV
measure is associated with less information revelation through prices. A certain number of
studies, presented by Clarke et Shastri (2001), employ the idiosyncratic risk as a measure of
information asymmetry. The authors show for instance that the idiosyncratic risk is positively
linked with several information asymmetry measures based on microstructure models. In this
paper, we consider the argument of Roll (1988) and assume that a higher FSRV reveals the
existence of more noise surrounding stock and is thus related to less information efficiency.

Group 2: Liquidity variable:

Our cross-sectional empirical model also includes a proxy of market liquidity which is the
Amihud (2002) illiquidity measure. Liquidity is a very important variable in asset pricing.
According to Amihud and Mendelson (1986), the lower the liquidity of an asset (higher cost of
trading), the higher the return it is expected to yield. We expect that firms with lower liquidity
react differently from liquid stocks.

This illiquidity measure allows capturing the depth and resiliency of trade for taxed stocks. The
Amihud measure allows us to observe the stock price movement that occurred by a given level
of trading. This measure is computed as the following ratio:

|𝑅𝑖𝑡 |
𝐼𝐿𝐿𝐼𝑄𝑖𝑡 = (8)
𝑉𝑜𝑙𝑖𝑡

Group 3: institutional indicator

We consider the Legal Enforcement, which is an institutional indicator extracted from Leuz et
al. (2003). This indicator ranges between zero and ten, zero standing for the lowest value, and
ten the highest. The Legal Enforcement indicator is calculated as the average score across three

22
For instance, see Morck et al. (2000) and Burlacu et al. (2005).

122
variables: an index of the legal system efficiency; an index of the rule of law; and the level of
corruption. This indicator is calculated based on La Porta et al. (1998).

In our sample, some countries have a strong level of legal enforcement such as Austria and
Germany (9.4 and 9.1, respectively) and others have a weak level of legal enforcement such as
Greece and Italy (6.8 and 7.1, respectively). Table 4 exhibits the list of countries with their
corresponding legal enforcement score.

[Please insert Table 4 about here]

By including this indicator, we want to know to what extent investors who expect the
implementation of any new regulation in the countries under study to work effectively react
less negatively to the FTT.

3.5 Results
3.5.1 European Market Reaction (Statistical results)

Table 5 presents the event returns statistics. In the first column, we expose the raw return
of the European firms for each one of the 11 events. The raw return is the 3-day value-weighted
return centered on the event date. The MSCI ex-Europe index return is presented in the second
column. We follow Campbell et al. (1997) and Armstrong et al. (2010) and market adjust raw
event returns to mitigate potentially confounding effects of global news occurring concurrently
with our event dates. This adjustment of the raw return is obtained from the difference between
the raw return and the MSCI ex-Europe index, which is presented in the third column.

The results show that the mean raw return corresponding to the 11 events is -0.00131 and is
0.001464 for the MSCI ex-Europe index. And that of the difference, which is the adjusted raw
return, is -0.00277. The last has turned out to be negative and significantly different from zero,
concluded so by T-test (t-statisticsvs0 = -4.1305).

The significant negative result indicates that the investors have considered these events as bad
news, and thus they have recognized that the tax adoption would have negative externalities.
The investors may have considered that implementing a new financial transaction tax will
decrease the efficiency of the market. More generally, the investors may have considered that
the cost of the tax implementation will be higher than the benefits. This result confirms our
initial research hypothesis H1 mentioned at the beginning of this article, which states that events

123
which increase the probability of a tax adoption in Europe are associated with a negative
abnormal return.

[Please insert Table 5 about here]

3.5.2 Cross-sectional results

Table 6 presents some descriptive statistics for the variables used in equation (1). Table
7 presents Pearson correlations between the variables. It is clear that the CMAR is significantly
correlated with the majority of the variables. Unsurprisingly, the Pearson correlations results
show that the CMAR is significantly correlated with the majority of information efficiency
variables. The CMAR is significantly positively correlated with the Delay and the FSRV
variables and significantly negatively correlated with the Size variable. Concerning the
illiquidity variable, the CMAR is significantly negatively correlated with the Amihud variable.
The correlation between CMAR and LegalEnf is however not significantly different from zero.

[Please insert Table 6 about here]

[Please insert Table 7 about here]

Table 8 presents the regression (1) results. The coefficients of the first two information
asymmetry measures (BTM and Size) are not significantly different from zero. On the other
hand, Table 8 shows that the coefficients of the two other variables FSRV and Price delay are
significant and positive. This indicates that CMAR is less negative when FSRV and Price Delay
are larger (when there is more information asymmetry). This means that for stocks submitted
to high information risk, and for which noise trading may be important, the event is welcome
by investors as positive news. The tax is probably seen as driving out from the market noise
traders and thus it is seen as reducing information asymmetry risk. These results are consistent
with investors expecting the application of a financial transaction tax to improve the
information quality for these latter stocks.

On the opposite, the news is received less positively for stocks with low levels of information
asymmetry. For these latter stocks, investors may consider that the financial market is less
noisy, rather populated by informed agents and that the tax may drive out of the market rational

124
investors trading based on their private information. For these stocks, the tax is not considered
to have positive externalities. This result confirms our hypothesis H2a.

It is also shown in Table 8 that the coefficient of the Amihud illiquidity measure, β3, is negative
and significant (β3 coefficient equals -0.149778). This indicates that market participants or
investors reacted more negatively to the FTT adoption for firms with lower liquidity. This also
confirms our hypothesis H2b that states that the cumulative abnormal return (CMAR) is more
negative when the stock is less liquid. For these stocks, the investors may be afraid that the FTT
will decrease even more the (already low) liquidity level of the market. This means that the
event is welcome by investors as more negative news for stocks that are less liquid.

Finally, Table 8 shows that the coefficient on Legal Enforcement, β6, is positive and
significant; this indicates that a good Legal Enforcement is associated with a positive or less
negative CMAR, which is in line with our hypothesis H2c. We can interpret this result by
considering that as much as there is a good application of laws, an efficient judicial system, and
a low level of corruption, investors anticipate that the application of any new tax or regulation
will decrease the risk related to the concerned market (i.e. where the tax has been implemented),
and correct the market failures. Thus, this means that the event is welcome by investors as
positive news or a less negative one) in countries that have good legal enforcement.

All our results confirm the research hypotheses H2a, H2b, and H2c. It thus follows from a
general view of Table 8 that the significant results corroborate hypothesis H2 which states that
some firm characteristics may mitigate or amplify (in absolute value) the stock returns reaction
to events increasing the probability of a tax adoption in Europe.

For robustness checks and in order to deepen our results, we further execute our model
on each event date. The results are provided in Table 9. The results are in line with those of
Table 8. For example, for the Amihud illiquidity measure, 6 out of 11 event dates show
significant and negative coefficients. Book-to-Market (BTM) is another example where none
of the eleven event dates is significant. Different measures show different behaviors, yet all of
them are consistent with the results of Table 8.

Moreover, we are particularly interested in focusing on 01/08/2012, which is the date of the tax
implementation in France. The motivation behind our choice is the fact that this first
implementation may have a major effect on other European countries' attitudes, besides its
remarkable effect on the European market in general. This probably also explains why we have

125
seen an implementation of the tax in Spain just a few months after its implementation in France.
The results that appear relative to this date are consistent with the results of table 8.

[Please insert Table 8 about here]

[Please insert Table 9 about here]

3.6 Conclusion

The last 2008 financial crisis has shed the light again, mainly in Europe, on the financial
transaction tax topic. On the 28th of September 2011, the European Union has set a project to
implement a financial transaction tax across all EU member states as a tool to help to stabilize
the market in the aftermath of the crisis. This study analyzes the impact of the FTT
implementation process on stocks market returns for eight European countries that are
concerned by the tax project. Our aim is to investigate the European equity market reaction to
11 events increasing the probability of an FTT adoption in Europe.

Overall, in the first part of this article; our results show that these events have negatively
affected stock returns. This implies that investors considered that the negative externalities of
the tax adoption will be higher than its benefits. The investors have considered that
implementing a new financial transaction tax will decrease the efficiency of the market.

As for the second part of this article, we assume that the magnitude of the returns’ reaction
will not be the same across all the European firms. We consider that some firm's characteristics
may mitigate or amplify (in absolute value) the investors’ perception of the tax externalities and
thus the stock returns reaction to events increasing the probability of a tax adoption in Europe.
We analyze if there is a variation between the firms’ reactions due to their different
characteristics.

In detail, we find more negative reactions in European firms with lower liquidity. These
findings suggest that the investors expect more negative externalities of the tax for stocks with
a lower level of liquidity. Moreover, the cross-sectional results show that for stocks submitted
to high information risk, the event is welcomed by investors as positive news and the tax is seen
as reducing information asymmetry risk. These results are consistent with investors expecting

126
the application of a financial transaction tax to drive out noise traders from the market and to
improve the information quality for these latter stocks. As for the last factor (Legal
Enforcement), we find a less negative reaction for firms that are located in countries with higher
legal enforcement, which suggests that the event is welcomed by investors as less negative news
in countries that have good legal enforcement. We can interpret these results by considering
that when there is a good application of laws, an efficient judicial system, and a low level of
corruption, investors could believe that the application of any new tax or regulation will
decrease the risk related to the concerned market (i.e. where the tax has been implemented),
and correct the market failures.

127
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 Table 1: National Financial Transaction type taxes around the European countries

This table presents an overview about national financial transaction type taxes around the
European countries.

Country Tax principles Types of Tax

0.27% tax on stock exchange transactions (max € Transfer Tax

1600 per transaction). The tax is applied on the
Belgium
purchase or sale of Belgium or foreign listed shares,
bonds and other securities.

0.15% tax on stock exchange transactions. The tax Stamp Duty

is applied on the purchase or sale of shares, bonds
Cyprus
and other securities. 0.20% tax rate is applied on
transactions with amounts over € 170,001.

1.6% tax on the purchase or sale of Finnish shares, Financial Transaction Tax
Finland
bonds and other securities.

From the “Impôt sur les operations de bourse” in Financial Transaction Tax
1893 (IOB) to the French financial transaction tax
in 2012. The IOB was modified several times but
stayed in force for more than a century before being
completely abandoned in 2008. The IOB rate was
0.3% for transactions of less than €153,000 and
France
0.15% for larger transactions.

On August 1, 2012, France launched a tax on

financial transactions that charges 20 basis points on
the purchase of shares issued by French companies
with a market capitalization that exceeds € 1 billion.

1% tax on the purchase or sale of shares of firms Stamp Duty

registered in Ireland. The Stamp Duty is mainly
Ireland applied to transfers of shares in Irish firms and to
derivative financial instruments concerning shares
in Irish companies.

131
 In March 2013, Italy introduced a 0.2% tax on the Financial Transaction Tax
purchase or sale of shares of firms located in Italy
Italy with a market capitalization that exceeds € 500
million, 0.02% on high frequency transactions and
0.1% on the purchase or sale of stock exchange.

2% Stamp duty on the transfer (purchase or sale) of Stamp Duty

Malta marketable securities (share, stocks, bonds). The tax
is applied on transactions that are executed in Malta.

1% transfer tax on certain exchanges of property Transfer Tax

Poland (securities, OTC transactions and derivatives)
rights.

Tax on stock exchange transactions. 0.15% rate tax Stamp Duty

is applied on the purchase or sale of domestic
Switzerland securities and 0.3% on the purchase or sale of
foreign securities provided that the transaction is
executed by a domestic trader (Dealer).

United 0.5% Stamp Duty on the purchase or sale of shares Stamp Duty
kingdom and other securities.

132
 Table 2: Empirical Literature Review

Table 2 represents a summary of the group of studies that examined the impact of the tax on
stock market returns. STT refers to the securities transaction tax

A * denotes that these variables have not been studied.

Country Tax
Author (Year) (Market) Event Returns Volume Liquidity

Umlauf (1993) Sweden STT Negative negative *

Hu (1998) Taiwan, Japan, STT

Hong Kong, Negative No impact No impact
S.Korea

Saporta and Khan United Kingdom STT Negative * *

(1997)

Bond et al. (2005) United Kingdom STT Negative * *

Liu (2007) Japan STT Negative Negative *

Phylaktis and Japan STT No impact * *

Aristidou (2007)

Coelho (2014) France and Italy STT Negative Negative in No impact

France

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 Table 3: Sample Composition by Country

Table 3 provides the sample categorized according to the country. Our final sample
consists of 407 firms distributed over eight European countries that have a market
capitalization that exceeds one billion euros. The considered firms are a subset of the major
financial indices in Europe (e.g. SBF120, Dax30, IBEX35, etc.).
Country Firms Total Observations

Austria 24 264

Belgium 33 363

France 122 1342

Germany 110 1210

Greece 12 132

Italy 54 594

Portugal 12 132

Spain 40 440

Total 407 4,477

Table 4: List of countries with their corresponding legal enforcement score

Table 4 represents the sample countries with their corresponding legal enforcement score
extracted from Leuz et al. (2003). The classification of the Legal Origin is based on La Porta
et al. (1998). The legal enforcement score ranges between zero and ten for zero standing for
the lowest value and ten the highest. The Legal Enforcement indicator is calculated as the
average score across three legal variables used in La Porta et al. (1998): an index of the legal
system efficiency; an index of the rule of law; and the level of corruption.

Country Legal Origin Legal Enforcement

Austria German 9.4

Belgium French 9.4

France French 8.7

Germany German 9.1

Greece French 6.8

Italy French 7.1

Portugal French 7.2

Spain French 7.1

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Table 5: European market reaction to events affecting the likelihood of FTT adoption in
Europe

This table presents the three-day returns centered on the 11 events considered as affecting the
likelihood of FTT adoption in Europe. Raw Return Europe is the three-day return to the 407
European firms, centered on the event date. MCSI ex Europe index return is the three day value
weighted return to the MCSI ex Europe index, centered on the event date. Market Adjusted
Return is the difference between Raw Return Europe and MCSI ex Europe index return.
MSCI ex Market-
Raw Return Europe Adjusted
Event Date Event Description Europe Return Return

August 16, 2011 Franco German -0.0061 -0.0064 0.0003

Summit

September 28, EU commission 0.0510 0.0286 0.0224

2011 present proposal for
EU wide FTT

January 23, 2012 “My enemy is the 0.0029 -0.0054 0.0083

world of finance”
The campaign slogan
of the frontrunner
candidate in the
French elections
“Francois Holland”

January 30, 2012 The French FTT is -0.0052 0.0001 -0.0054

officially announced
for August 2012

July 4, 2012 The French -0.0121 0.0152 -0.0272

government
officially announced
a doubling of the tax
rate from 0.1% to
0.2%
-0.0240 0.0028 -0.0268
st
August 1 , 2012 The French FTT
comes into force

October 9, 2012 EU enhanced -0.0128 -0.0113 -0.0015

cooperation
procedure

December 12, EU parliament 0.0023 -0.0106 0.0128

2012 adopts legislative

135
 resolution on use of
ECP
January 22, 2013 0.0037 -0.0082 0.0119

The European
Commission
authorized the
implementation of an
enhanced
cooperation

February 14, 2013 EU Commission -0.0093 0.0034 -0.0127

adopts its new
proposal for an EU
Financial
Transaction Tax

March 1st, 2013 Italian FTT comes -0.0048 0.0079 -0.0127

into force

Mean Return across events -0.00131 0.001464 -0.00277

136
 Table 6: Descriptive statistics
This table presents descriptive statistics for the variables used in the regressions. The sample
comprises 4,477 observations. CMAR is the firm’s cumulative market-adjusted return,
measured as the three day return centered on the event date minus the three-day return to the
MCSI ex Europe Index. Book to Market (BM) measured as the market value divided by the book
value. Size is the log of the firm’s market value of equity. Price Delay (Delay) is calculated
based on the paper of Hou and Moskowitz (2005). FSRV is estimated based on Durnev et al.
(2004).The Amihud (2002) ratio is obtained with the absolute daily stock returns divided by
trading volumes (in € thousands). Legal Enforcement (LegalEnf) is an institutional indicator
that takes into consideration the traditions and institutions by which authority in a country is
exercised.

Variables N Mean SD Median Q1 Q3

CMAR 4477 -0.0019 0.0316 -0.002 -0.0183 0.0136

BM 4477 2.2819 13.668 1.260 0.81 2.055

Size 4477 7.6766 1.4981 7.530 6.618 8.712

Delay 4477 0.5469 0.3009 0.5387 0.282 0.831

FSRV 4477 2.0645 2.0921 1.9152 0.429 2.185

Amihud 4477 0.0007 0.0150 0.00 0.00 0.00

LegalEnf 4477 8.4098 0.8814 8.68 7.14 9.02

137
 Table 7: Correlation Matrix
This table reports the Pearson pairwise correlation coefficients between the variables used in
the regression model for the sample consisting of 4477 observations. CMAR is the firm’s
cumulative market-adjusted return, measured as the three day return centered on the event date
minus the three-day return to the MCSI ex Europe Index. Book to Market (BM) measured as
the market value divided by the book value. Size is the log of the firm’s market value of equity.
Price Delay (Delay) is calculated based on the paper of Hou and Moskowitz (2005). FSRV is
estimated based on Durnev et al. (2004).The Amihud (2002) ratio is obtained with the absolute
daily stock returns divided by trading volumes (in € thousands). Legal Enforcement (LegalEnf)
is an institutional indicator that takes into consideration the traditions and institutions by which
authority in a country is exercised. Coefficients in bold are significant to at least the 5% level.

Variables CMAR BM Size Delay FSRV Amihud LegalEnf

CMAR 1 -0.0045 -0.0311 0.0737 0.0208 -0.0723 0.0257

BM 1 -0.0522 -0.0141 0.0246 -0,0039 -0.0048

Size 1 -0.0119 -0.2254 -0.1098 0.0440

Delay 1 -0.0596 -0.0244 -0.0314

FSRV 1 0.0254 -0.0006

Amihud 1 -0.0426

LegalEnf 1

138
 Table 8: The relationship between CMAR and firm characteristics
This table presents the results from regressing the dependent variable CMAR over variables
that are used in our model and represents different firm characteristics, namely: BM, SIZE,
,Delay, FSRV,Amihud, LegalEnf; over the period 2011-2013. The table reports the relative
coefficients of the explanatory variables, the standard error, the t-statistics, and the p-value.
*** Indicates that the variable is significant at the 1% level. ** Indicates that the variable is
significant at the 5% level. * Indicates that the variable is significant at the 10% level. The R-
squared is 0.0244, the adjusted R-squared is 0.0226.

Variables CMAR
(t-statistics)

BM (-0.55)
-0.0000214

Size (-0.42)
-248955.8

Delay (4.46)
0.00712***

FSRV (3.82)
0.00112***

Amihud (-4.68)
-0.14973***

LegalEnf (2.14)
0.00116**

N 4477
R2 0.0244
Adj. R2 0.0226

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 Table 9: Cross Sectional Analyses (regression each event date)

This table presents the results from regressing the dependent variable CMAR over variables
that are used in our model and represents different firm characteristics, namely: BTM, SIZE,
Amihud, LegalEnf, Delay, FSRV on each event date separately. The table reports the relative
coefficients of the explanatory variables, the standard error, the t-statistics, and the p-value.
*** Indicates that the variable is significant at the 1% level. ** Indicates that the variable is
significant at the 5% level. * Indicates that the variable is significant at the 10% level.

(16/08/2011) (28/11/2011) (23/01/2012) (30/01/2012) (04/07/2012) (01/08/2012)

cmar cmar cmar cmar cmar cmar

BM -0.000210 -0.000597 0.0000646 -0.000190 0.000289 -0.000128

(-0.89) (-1.24) (0.43) (-0.98) (1.00) (-0.60)

Size 0.000672 0.00162 -0.00260* -0.00143 -0.00236* -0.00138

(0.55) (1.28) (-2.52) (-1.05) (-2.54) (-1.12)

Delay -0.0268*** 0.00434 0.0143** 0.00838 -0.000837 0.0144*

(-4.91) (0.72) (2.81) (1.22) (-0.18) (2.49)

FSRV 0.00471*** -0.00975*** -0.00133 0.00242 0.00315*** 0.00374**

(3.47) (-8.14) (-1.21) (1.75) (3.38) (3.31)

Amihud 0.790 -0.700* 0.319 -1.105*** -0.118** -1.453*

(1.84) (-2.52) (0.42) (-6.79) (-2.90) (1.30)

LegalEnf -0.0132*** 0.00723*** -0.00450** -0.00294 0.00544*** 0.00967***

(-7.76) (3.82) (-2.85) (-1.36) (3.96) (5.73)

R-squared 0.1975 0.2605 0.0747 0.1285 0.1254 0.1462

t statistics in parentheses
*
p < 0.05, ** p < 0.01, *** p < 0.001

140
 Table 9 (Continued)
(09/10/2012) (12/12/2012) (23/01/2013) (14/02/2013) (01/03/2013)
cmar cmar cmar cmar cmar

BTM 0.000152 -0.0000501 -0.0000210 0.0000342 -0.0000228

(1.29) (-0.34) (-0.47) (0.51) (-0.29)

Size -0.000403 -0.00130 -0.000482 -0.00240** 0.00103

(-0.51) (-1.53) (-0.66) (-2.65) (1.00)

Delay -0.0125* 0.000753 0.00342 0.00480 0.00156

(-2.43) (0.20) (0.70) (1.00) (0.27)

FSRV -0.000401 0.000233 -0.000482 -0.0000360 -0.000354

(-0.70) (0.35) (-0.75) (-0.04) (-0.42)

Amihud 0.178 1.006 -0.0879** -0.983* -0.601

(0.07) (1.39) (-3.24) (-2.42) (-0.28)

LegalEnf 0.00252 -0.00395** 0.00161 0.00391** 0.00599***

(1.96) (-2.87) (1.11) (2.62) (3.57)

_cons -0.0136 0.0595*** 0.00243 -0.0219 -0.0744***

(-1.02) (4.38) (0.20) (-1.52) (-4.62)

R-squared 0.0467 0.0389 0.0445 0.0516 0.0415

t statistics in parentheses
*
p < 0.05, ** p < 0.01, *** p < 0.001

141
Figure 1: Investors' reaction hypothesis

142
 Figure 2: FTT Implementation Timeline

August 16, 2011

Franco German Summit

September 28, 2011

EU commission present
proposal for EU wide FTT January 1st, 2012
First announcement for a
French FTT

January 23, 2012

The French elections
January 30, 2012
The French FTT is
officially announced

July 4, 2012
Doubling of the French tax rate from
0.1% to 0.2%
August 1st, 2012
The French FTT comes into
force

October 9, 2012
EU enhanced
cooperation procedure December 12, 2012
(ECP) EU parliament adopts
legislative resolution on use of
ECP
January 22, 2013
The EU Commission
authorized the
February 14, 2013
implementation of EC
EU commission adopts proposed
directive implementing ECP FTT

March 1st, 2013

EU parliament adopts
legislative resolution on use of
ECP

143
Figure 3: Event study timeline

144
Chapter 4

145
 Chapter 4: Long and short-term Impacts of Regulation in the

Cryptocurrency Market

Abstract23

S
ince the creation of cryptocurrencies, the crypto market has been known for its
fluctuations, whether in terms of high volatility or illiquidity. Since then, public
authorities and regulators frequently attempted to regulate this market. We aim
in this paper to examine whether cryptocurrency traders perceive market regulation in a
beneficial way. Using an event study methodology for daily data covering the period 2015-
2019, we assess how regulatory news and events have affected returns in the cryptocurrency
market. We further assess whether specific cryptocurrency characteristics and in particular their
liquidity explain cross-sectional variations in cryptocurrencies’ return reactions. The results
suggest that events that increase the probability of a regulation adoption are associated with a
negative abnormal return for the concerned cryptocurrencies. We also find that the magnitude
of the returns’ reaction is not the same across all the cryptocurrencies of our sample. We show
that investors reacted less negatively for the most illiquid cryptocurrencies, as well as for the
cryptocurrencies that incurred more information asymmetry risk. Finally, we analyze a longer-
term effect of regulatory events by studying the performance of cryptocurrencies. The
performance in the pre-event period is positive and significant; it however appears to be not
significantly different from zero in the post-event period.

Keywords:

Regulation; Cryptocurrency risk; Cryptocurrency return; Market liquidity; Market efficiency.

JEL: G14 ; G18 ; G30

23
This article was co-written with Elise Alfieri :
PhD in Finance, CERAG, Grenoble Alpes University

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4.1 Introduction

“Bitcoin is not unregulated. It is regulated by algorithm instead of being regulated by

government bureaucracies.” Andreas M Antonopoulos24.

The massive collapse of the banking sector caused by the 2008 financial crisis on the one
hand, and the insecurities in financial institutions, on the other hand, has led to the rigorous
development of cryptocurrencies, making it a spot of attention among different scholars and
professionals. According to the CoinMarketCap website, at the moment of writing this article
(February 2020), there are around 5,000 existing cryptocurrencies 25. Almost all these
cryptocurrencies share the same operating process. They are independent of any third party
such as the central bank and they are exchanged between users through a decentralized (peer-
to-peer) system thanks to its underlying technology, the blockchain.

The cryptocurrency market is complex due to the high number of cryptocurrencies existing
in the market and exposed to high risks given the frequent and large price fluctuations (Bouri
et al, 2019). Moreover, the anonymity of most of the cryptocurrency users plays a role in this
complexity. This situation has led to a continuous debate between policymakers and financial
institutions. Although there is a wide consensus (e.g., Carney (2018), Central Bank Governors,
Financial Stability Board (FSB 2018), US Securities and Exchange Commission (SEC 2017),
Zetsche et al. (2019)) about the necessity to regulate the cryptocurrency market, there are
several different points of view about this issue. The source of this controversy is the
indeterminate legal nature of cryptocurrencies. Some governments consider them assets while
others consider them as a transfer of payment or currency. In this article, we consider that
cryptocurrencies might be considered as securities (Alfieri et al., 2019). In this view, we could
consider cryptocurrency markets as behaving similarly to stock markets. However, most of the
stock markets are regulated to ensure stability and liquidity for investors. This raises the issue
of cryptocurrency market regulation.

The ways to regulate cryptocurrencies are various and can be divided into three main
objectives. According to the European Central Bank (ECB), price stability is one of the most
important objectives as cryptocurrencies influence the velocity of money (ECB, pp. 1-37).

24
Andreas M. Antonopoulos is one of the world’s foremost cryptocurrency and open blockchain experts.
25
On April 17th, 2020, available on: https://coinmarketcap.com/

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 One of the goals behind regulating this market is also to make it more liquid. Several
financial and government reports (e.g. FSB, the G20) as well as academic articles (e.g. Auer
and Claessens (2018)) shed light on liquidity risk and suggest that several factors can make the
cryptocurrency market illiquid and limit the ability of its participants to buy or sell crypto-
assets. Besides, regulators seek to play a very important role in ensuring consumer protection
through alleviating illicit activities and money laundering transactions. In the end,
implementing new regulations on this market could generate millions of dollars for the
governments’ concerns.

We shall recall that the significance of the cryptocurrency market is that it was established
in a decentralized manner and away from the supervision of any government or regulating
institutions. Regulating this market by introducing fiscal, restrictive, or even banning policies
would certainly have a wide range of effects on the functioning of cryptocurrency markets.

Cryptocurrencies are born with the creation of Bitcoin (Nakamoto, 2008) whose primary
purpose was to create an international payment system independent of any third-party such as
a central bank or financial institution. The underlying technology, the blockchain, is a
distributed database that allows users to exchange directly with each other without the need for
a third-party. The system works thanks to a consensus mechanism between participants to verify
transactions (Tschorsch and Scheuermann, 2016). After Bitcoin, several other cryptocurrencies
have emerged by improving its technology (e.g., Ether, (Buterin, 2015)) or being developed for
special use (e.g, Ripple for the financial industry (Schwartz et al., 2015)).

The objective of this article is to examine whether cryptocurrency investors perceive

market regulation in a beneficial way. First, we perform a short-term event study to assess and
understand the market reaction to events and news increasing the probability of a regulation
adoption. Second, we study the longer-term impact of regulation on the cryptocurrencies’
performance by focusing on periods before and after the accumulated events sample period.

We aim to assess how cryptocurrency users receive such regulatory news by using an event
study framework. From a methodological point of view, we follow Armstrong et al. (2010) who
investigate the stock market reactions to the IFRS adoption. In our article, we address two
alternative scenarios. First, investors could react positively to the adoption of regulation if they
consider that this regulation is prone to improve the functioning of the market and to reduce
risks incurred by investors of financial markets. According to the proponents of such a
regulation, implementing a new regulation would increase confidence in the market and could

148
protect investors from fraud; moreover, new projects based on crypto-markets could be more
easily financed and supported. As a result, there might be an increase in the demand for
cryptocurrencies following regulatory events. This should lead to a positive return market
reaction. On the other hand, a certain type of investors might be attracted by the cryptocurrency
market due to the absence of supervision by any government or by any regulating institution on
this market. Adding a new regulation on this market should decrease the demand from this type
of investors per se.

While empirical evidence is still scant, and in the absence of a clear perception of the
overall market reaction concerning the regulation implementation, we attend to examine three-
day market-adjusted returns for cryptocurrencies that are involved in our study. We select 63
events extracted from the FACTIVA database and reports analysis, from 2015 through 2019.
We choose the events across the world which refer to regulation adoption or which might
increase the likelihood of a regulatory adoption.

Moreover, we claim that all cryptocurrencies returns do not react with the same strength
to changes in regulations. We thus enlarge the scope of our study by measuring to which extent
particular cryptocurrencies financial characteristics explain cross-sectional variation in
cryptocurrencies’ return reaction. This approach aims to analyze why the value of
cryptocurrencies evolves in different ways (i.e. if the reaction is positive/negative, then which
cryptocurrencies’ characteristics amplify, or on the opposite mitigate, the investors’ reaction).

As a second approach for deeply understanding the regulation effect on cryptocurrency

markets, we empirically analyze the cryptocurrency portfolio performance. To assess the
impact of the regulation on the longer-term performance, we consider a portfolio composed of
the seven major cryptocurrencies (Bitcoin (BTC), Ether (ETH), Litecoin (LTC), Tether
(USDT), Ripple (XRP), Dash (DASH), Monero (XMR)) and we select a time interval where
most of the regulation events are present. We compare the performance of the cryptocurrency
portfolio before and after the occurrence of these regulation events using different measures. In
this article, cryptocurrencies are treated as securities. We thus appraise the cryptocurrencies
performance by the risk-adjusted return from, alternatively, the CAPM model, the Fama-French
3-factors model (Fama and French, 1992) and the Carhart model (Carhart, 1997). Our analysis
is drawn from June 24th, 2016, to June 26th, 2017, for the “pre-period” (i.e. before the
regulation events) and from October 21st, 2018, to October 21st, 2019, for the “post-period” (i.e.
after the regulation events).

149
 Our paper contributes to the existing literature on the regulation of cryptocurrencies. First,
we study investors’ perception of a new regulation by analyzing the cryptocurrencies market
returns reaction to events increasing the probability of regulating this market. Second, we
analyze whether particular cryptocurrency characteristics affect the returns’ response to these
events. Third, unlike the existing research on cryptocurrencies, the novelty of our study is to
take into consideration the impact of several regulation events on the performance of a
cryptocurrency portfolio (in the long-term). The fourth contribution is a methodological one
since we follow Armstrong et al. (2010) and Zhang (2007) by implementing their methodology
on the crypto market. We also consider different microstructure variables that are widely used
in the prior literature on the stock markets, but much less on the cryptocurrency market, such
as the Amihud (2002) illiquidity measure and the Hou and Moskowitz (2005) delay measure.

The rest of the paper is structured as follows: Section 2 presents a brief background on
cryptocurrencies and their classification. Section 3 describes the events we consider as
affecting the regulation adoption, and our developed hypotheses. Section 4 lays out our data
and research methodology and explains our variable measurements, Section 5 presents the
empirical results and Section 6 concludes the paper.

4.2 Background on cryptocurrencies

4.2.1 What is a cryptocurrency?

There is no unique definition for cryptocurrencies. Cryptocurrencies are 100% virtual

assets, which exist only in computer networks and are completely independent (i.e. not managed
by the governments or any third party) due to the absence of third parties in the transactions.
Thus, any transaction between a seller and a buyer is performed anonymously. These currencies
exist thanks to a technology called Blockchain, which is a secured distributed database. The
system makes use of cryptographic techniques to work without any central control.

The most known cryptocurrency is the Bitcoin created by Nakamoto in 2008. As

mentioned before, according to the CoinMarketCap website there exist around 5,000
cryptocurrencies distributed over different exchange platforms. Besides, trading in
cryptocurrencies differs from trading in stocks, since there is no specific organized exchange
market (e.g. NYSE), but different informal platforms on the internet (e.g. Coinbase). Trading
platforms play a crucial role in the exchange of cryptocurrencies. These platforms are the only

150
link between the seller and the buyer on which they can directly trade with each other. The price
of cryptocurrencies varies according to changes in demand and supply.

Several policymakers such as the European central bank (ECB), the International
Monetary Fund (IMF), and the Bank of International Settlement (BIS) define cryptocurrencies
similarly which enables us to conclude that cryptocurrencies are intended to (i) constitute a
peer-to-peer (“P2P”) alternative to government-issued legal tender, (ii) are independent of any
central bank, (iii) are secured by a mechanism known as cryptography as shown in figure 1.

[Please insert Figure 1 about here]

4.2.2 How to classify cryptocurrencies?

The nature of cryptocurrencies is a subject of debate and they can be viewed differently
across countries. Table 1 reports the historical regulation and tax principles for different
countries around the world, thanks to a qualitative analysis of the literature review and reports
concerning cryptocurrencies’ regulations (e.g. Global Legal Insights (2019), Houben and
Snyers (2018), Shirakawa and Korwatanasakul (2019), The Law Library of Congress (2018) ).

There is no agreement concerning the nature of cryptocurrencies, as some countries

consider them as assets or commodities, while other countries consider them as means of
payment or currencies. However, most governments and even the academic literature
considered them as properties rather than currencies (Yermack; 2015).

For instance, Bitcoin appears to be similar to common stocks according to its high mean-
variance profile. Holding a Bitcoin could represent a part of the blockchain technology. That
is, the blockchain technology could represent an intangible asset, and the human capital
represented by qualified experts who run codes and use mathematical procedures for the sake
of enhancing the system credibility. Therefore, Bitcoin could be seen as an investment
generating benefits in a similar manner as common stocks (Alfieri et al. 2019), (Baur et al.,
2016), (Glaser et al., 2014).

In addition to cryptocurrencies themselves, tokens are created notably to raise funds for new
projects in a process called Initial Coin Offering. An organization with a business project issues
tokens against currencies to raise funds in cryptocurrency. Then, the owner of the tokens can
either trade tokens against other cryptocurrencies on a secondary market or use tokens inside a
project (e.g., voting power).

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In this article, we consider cryptocurrency in general, by including tokens.

[Please insert Table 1 about here]

4.2.3 Why regulating cryptocurrencies?

The emergence of cryptocurrencies has been a growing field of attention for scholars
and professional investors. According to the aforementioned classifications, there exists a
debate concerning the legal nature of cryptocurrencies. However, there is a consensus on the
necessity of regulating the cryptocurrency market. Nonetheless, law and policymakers are still
scant in their actions due to the technical aspects that need to be well understood to be able to
set regulations.

The ways to regulate cryptocurrencies are various and can be divided into three main
objectives. These objectives do not differ that much from financial assets and services
regulations.

The first and main goal of regulation is to counteract the risks. The high volatility of
cryptocurrency markets sheds light on the importance of regulations in achieving financial
stability (Corbet et al., 2020). According to the ECB, price stability is one of the most important
objectives behind regulating this market, mainly for two reasons: the impact of cryptocurrencies
on the velocity of money, and the increasing interest of blockchain technology as a speculative
tool for investing and achieving high returns in the short term. Moreover, several financial and
governments reports (e.g. The Financial Stability Board, the G20) and academic articles (e.g.
Auer and Claessens (2018)) shed light on liquidity risk and suggest that several factors can
make this market illiquid and limit the ability of participants to buy or sell crypto-assets.
Therefore, one of the objectives behind regulating this market is to make it more liquid.

The second objective of a regulation could be seen through alleviating illicit activities,
money laundering transactions, and to protect consumers. The European Central Bank
considers that the legal uncertainty regarding cryptocurrency transactions could represent a
challenge for public authorities as these transactions can be used by criminals and launderers to
exercise their governments' illegal activities. Moreover, the European Union adopted the 5th
Anti-Money Laundry Directive (5AMLD) in 2015 which aims to decrease the use of
cryptocurrencies for illicit purposes and terrorist financing “Directive (EU) 2015/849”.

152
According to EC Vice-President: “Less anonymity and more traceability, through better
customer identification could help governments to better control these transactions”.

The third objective is to generate significant revenues to the governments by

implementing different taxes and laws. According to Demertzis and Wolf (2018), the average
daily revenues from mining new cryptocurrencies in 2018 is greater than $44 million, and more
than 1.6 million unique users participate in transactions each day. Given that there is no unique
classification for cryptocurrencies among countries, regulators and public authorities face
different challenging problems and difficulties in the process of treating and regulating the
crypto market. Indeed, even though regulating and taxing this market is a difficult process per
se, it could generate millions of dollars to the governments.

Even though countries from different regions follow the same accounting standards (e.g.
GAAP), yet that does not mean that these countries would follow the same regulations on the
crypto market. Therefore, we could expect a variation in the implementation of such regulations
among countries. A challenging question is to what extent these rules/legal actions could be
effective in the absence of unified regulation for all countries.

For instance, there is global attention toward the need for a regulation for
cryptocurrencies across the world. However, there is no consensus on the cryptocurrency
classification across all member states implying a difficulty for governments to find a unified
regulation. Therefore, each government decides how to define, regulate, and manage
cryptocurrencies. Table 1 summarizes the cryptocurrency classification and regulation among
different countries. This table adds a complementary view to the outstanding literature by
summarizing the historical regulation and tax principles for different countries across the world.
In order to gather this reported information, we conduct a qualitative analysis of different
reports with regards to cryptocurrency regulation.

As mentioned previously, the cryptocurrency market is a sensitive market per se.

Despite that the classification of the nature of cryptocurrencies could differ between countries
(e.g. asset, currency, etc), we consider that adopting a national regulation for this market in a
given country would increase the possibility of adopting a regulation in another country.

153
4.3 Market Reaction to News

The cryptocurrency market is sensitive to news, and different examples support this
argument. For instance, in February 2018, when China officially blocked all electronic websites
related to cryptocurrencies, it led to a 16% drop in the price of Bitcoin for 24 hours. For this
reason, we have decided to consider in this article different events and news that might increase
the probability of adoption of future possible regulations. The events we consider in this article
could be classified into two types. The first type consists of the existing events and regulation
projects that have already been implemented. The second type consists of the events – or events’
announcement – that are to be implemented in the future. In both types, we considered that
these events increase the probability of a regulation adoption across all countries that are
interested in regulating this market. To better explain the aforementioned types, we present the
two following examples based on real events:

First type. January 30th, 2018: Trades in cryptocurrencies only from “real-name account
system” are allowed since this date, including rules for the cryptocurrency dealers (have a
contract with the bank, check the trader’s identity and register his account), for the traders (have
an account in the same bank of the dealer; if they are anonymous, they only can withdraw but
not deposit) and for the bank (analyze dealers’ management and cybersecurity, check the
trader’s identity). These rules are not allowed for foreigners and miners.

Second type. July 5th, 2016: A proposal to amend the Fourth Anti-Money Laundering
Directive is presented in the European Commission. One proposal is that virtual currency
exchange platforms should be included in the scope of the AMLD. Being in the scope of the
AMLD means that these platforms would be required to comply with diligence requirements
and have procedures to manage (detect, prevent, report) money laundering and terrorist
financing. On July 9th, 2018, the AMLD 5 entered into force.

As we mentioned before, there exist two scenarios for the investors’ reaction. Under the
first one, the adoption of a regulation aimed at improving and stabilizing the functioning of the
market, which would lead to a positive reaction by investors who consider that these regulations
will correct market failures. In this case, the investors’ demand for cryptocurrencies will
increase, thus making the market price of these assets higher. Under the second one, the
implementation of regulation might decrease the number of investors, especially those
motivated by the absence of regulations and by decentralization. Therefore, adding additional

154
regulations would decrease these investors’ interest in this market. In this case, the demand for
cryptocurrencies will drop, thus making the price of these assets decrease. We can also foresee
that these two scenarios happen at the same time. In that case, the global effect would depend
on the strongest scenario.

[Please insert Figure 2 about here]

Based on the previous literature, Auer and Claessens (2018) assess the intra-day impact
of regulatory news and events on the price of Bitcoin. Furthermore, the authors address the
impact on other cryptocurrencies and find that regulatory actions have a negative impact on the
price of cryptocurrencies and these events. Besides, they find a strong negative impact with
news that consider cryptocurrencies under securities laws. Recently, Koenraadt and Leung
(2019) study the impact of regulatory news and find that investors react negatively to events
related to regulatory news. In light of this, we hypothesize that investors globally receive events
that increase the probability of regulation adoption as ‘bad’ news pushing down the price of the
corresponding cryptocurrency.

Therefore, we formalize our hypotheses as follows:

H1: Events that increase the probability of the adoption of regulations are associated with a
negative abnormal return.

In the second part of our article, we formulate the following question. Is the market
reaction to regulatory news the same for all cryptocurrencies? We claim that the magnitude of
the return’s reaction will not be the same across all cryptocurrencies and that some
cryptocurrencies’ characteristics may mitigate or amplify the investors’ reaction. Our
contribution is to analyze precisely which of the cryptocurrencies’ characteristics could explain
the different variability of the investors’ reaction to the regulation adoption. For this aim, we
consider three different groups of characteristics which might cause a different reaction to the
regulatory events. Given that improving the stability and market quality are the main objectives
behind regulations, we consider different financial market quality variables in the first group –
mainly liquidity variables and information asymmetry measures. Because the cryptocurrencies
have specific characteristics, we find it interesting to study two of them: privacy and token.
Therefore, the second group is the privacy measure, which considers whether the users and/or
the database are anonymous and respects the users’ privacy, or not. The privacy issue is a topic

155
that is often criticized in the field of cryptocurrencies and is mentioned in regulatory events.
Finally, the third group considers whether the coin is a token, especially because coins and
tokens do not have the same implication on this market. Tokens are generally part of the
fundraising of projects (ICO) and have been recently studied by governments and institutions.

[Please insert Figure 3 about here]

In this view, we formulate the following hypothesis:

H2: Some cryptocurrency characteristics may mitigate or amplify the cryptocurrency returns
reaction to events increasing the probability of a regulation adoption.

In the upcoming sections, we discuss these variables in detail.

4.4 Data and Research Methodology

4.4.1 Data

We obtain daily cryptocurrency data from the Coinmarketcap website. This website,
largely used in the prior literature (e.g. Bouri et al. (2019), Cheah and Fry (2015), Fry and Cheah
(2016)) allows us to extract data on open and closing prices, trading volume, and market
capitalization. To conduct our study, our sample consists of the top thirty cryptocurrencies in
terms of market capitalization, by focusing on the current market situation. Our sample covers
the period from 2015 to 2019. The reason for choosing this period is to cover the major events
that occurred during this interval. In order to select the set of news and events, we review all
available reports concerning the cryptocurrency market regulation. Furthermore, we make use
of the FACTIVA database through searching for the specific words related to regulations
concerning the crypto market, such as: “cryptocurrency regulation”, “blockchain regulation”,
“tax cryptocurrency”, “regulatory cryptocurrency” by year. We choose the events related to the
adoption of a regulation, and we extract 6326 events from the FACTIVA database and reports
analysis.

26
The number of selected events is subject to the data availability. We are aware that other studies considered a
wider set of events. However, we performed our analyses first on a set of 63 events, and we further emphasized
on events in countries that consider that the crypto market is subject to securities law (22 events). Both samples
gave similar results. Therefore, the difference in the number of events in our study, and other studies, is not a
problem of concern.

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4.4.2 Research methodology
Event Study

Because our objective in this article is to study the investors’ perception related to the
adoption of a regulation, different approaches are implemented. Historically, the event study
methodology has been used in stock market studies to assess stock price reactions to important
news (MacKinlay, 1997). Our main goal in this part of our study is to assess investors’
perceptions relating to a new regulation on the Cryptocurrency market. We examine 30
cryptocurrencies return’s reactions to 63 regulatory events.

The event window. Similarly to Armstrong et al. (2010) and Zhang (2007), we conduct
our study around the dates of regulation events. We use a three-day event-window and, for each
cryptocurrency, we compute its return centered on the event date. Then for each date, we
compute the Raw Return which is the three-day value-weighted return of the 30
cryptocurrencies, centered on the event date.

The abnormal return. Armstrong et al. (2010) and Campbell et al. (1997) market adjust
events raw returns to alleviate the confounding effects of global news occurring alongside our
event dates. They choose a market index that does not take into consideration the firms that are
subject to regulation (Dow Jones ex Europe). However, regarding the crypto regulation is
growing, all cryptocurrencies are subject to the potential regulation. Therefore, we cannot use
a cryptocurrency index (such as the CRIX) for computing abnormal returns because this index
will be affected by the regulation itself. To manage this issue, we follow the literature on Event
Studies (Boehmer et al. (1991), Civitarese et al. (2018), Corrado et al. (1989), Serra (2002))
and we calculate the normal return as the average return on an estimation window before the
event date (to exclude possible events that might influence the returns), called Past Average
Return. Figure (4) presents the considered window.

[Please insert Figure 4 about here]

Cross-sectional analysis

In the second part of our study, we focus on testing whether some cryptocurrencies’
characteristics explain cross-sectional variation in the market reaction to the regulation events.
We precisely analyze whether there is a variation between cryptocurrencies reactions due to

157
their different characteristics. To meet this objective, we estimate the following equation by
using a Fama-MacBeth regression methodology:

𝐶𝑀𝐴𝑅𝑗,𝑒 = 𝛽0 + 𝛽1 𝐶𝐸𝑇𝑗,𝑒 + 𝛽2 𝐼𝐿𝐼𝑄𝑗,𝑒 + 𝛽3 𝑀𝐿𝐼𝑗,𝑒 + 𝛽4 𝐷𝑒𝑙𝑎𝑦𝑗,𝑒 + 𝛽5 𝑆𝑖𝑧𝑒𝑗,𝑒 + 𝛽6 𝑉𝑜𝑙𝑗,𝑒

+ 𝛽7 𝑃𝑅𝐼𝑗,𝑒 + 𝛽8 𝑇𝑂𝐾𝑗,𝑒 + 𝜖𝑖𝑡 (1)

Where CMAR is the cryptocurrency's cumulative adjusted return, measured as the three-day
return centered on the event date minus the average return using an estimation window before
the event date (-120 days to -5 days).

The independent variables are the cryptocurrencies’ characteristics. We consider the

Coefficient of Elasticity of Trading (CET), the Amihud (2002) illiquidity measure (ILIQ), the
Index of Martin (MLI), the Price delay (Delay), the Size (Size), the Trading Volume (Vol), the
Privacy (PRI) and the Token (TOK) variables. Based on the objective of regulators or on the
possible impact of regulations on the aforementioned variables, these variables allow us to
appraise the three types of characteristics previously presented (e.g., (1) market quality, (2)
privacy, (3) token). As we said, these three types are linked with the regulation issue.

The first group (CET, ILIQ, MLI, Delay, Size, Vol) consists of financial market quality variables
(mainly, liquidity variables and an information asymmetry measure), the increase of which
being a major objective of several regulatory events. Given that the cryptocurrency market faces
liquidity issues (Dyhrberg et al., (2018), Weil (2018)), we have considered liquidity measures.
Given the link between liquidity and information asymmetries, we also include in our analysis
a notable measure, the price delay (Delay) of Hou and Moskowitz (2005), to measure the delay
of information incorporation into prices.

The second group (PRI) is the privacy measure, which is a variable we created to know whether
the users and/or the database are anonymous and respect the users’ privacy, or not. The
transparency aspect of cryptocurrency raises several regulatory questions regarding the privacy
of users and exchanges especially to deal with the illicit markets.

Finally, the third group Tokens (TOK) is a dummy variable equals 1 if the cryptocurrency is
considered as a token and to 0 if not. Tokens are used generally in fundraising in
cryptocurrencies and raise the question about reliable projects in which agents invest.
Therefore, some recent regulation events are talking about regulating these projects that might
have an impact on these tokens.

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Group 1: Financial market quality variables

Our model includes three proxies of market liquidity. It is well known that liquidity
describes how quickly an asset can be purchased in non-negligible quantities without having an
impact on its market price.

There are several ways in the literature to measure the liquidity of an asset. In our study, we
used some measures that are popular in the literature. The three liquidity measures are discussed
below:

Coefficient of Elasticity of Trading (CET)

This measure was first proposed by Datar (2000), who considers that liquidity is similar to the
price elasticity of trading volume. The coefficient of elasticity measure (CET) is given by
dividing the percentage change in trading volume by the percentage change in price.

𝑉
% of the change in Trading Volume ln(𝑉 𝑡 )
𝐶𝐸𝑇 = = ∑𝑇𝑡=1 𝑡−1
𝑃 (2)
% change in Price ln(𝑃 𝑡 )
𝑡−1

The range of CET is from negative infinity to positive infinity. According to Datar (2000), a
stock is highly liquid if its value of CET is far away from zero, either approaching positive or
negative infinities. A high value of CET means the price changes are accompanied by a large
change in the volume of transactions (Loi, 2017).

Amihud (2002) illiquidity ratio

This illiquidity measure has been used widely in the literature. According to Amihud, the
lower the liquidity of an asset, the higher the return it is expected to yield. Amihud’s proxy is
given by the absolute daily stock returns divided by trading volumes.

|𝑅𝑖𝑡 |
𝐼𝐿𝐿𝐼𝑄𝑖𝑡 = (3)
𝑉𝑖𝑡 𝑃𝑖𝑡

Where |𝑅𝑖𝑡 | is the absolute value of the daily return on cryptocurrency 𝑖 on day 𝑡; 𝑉𝑖𝑡 is the
daily traded volume, and 𝑃𝑖𝑡 is the closing price of cryptocurrency 𝑖 on day 𝑡.

159
 Martin (1975) index

This measure was proposed by Martin (1975). A high value of this liquidity index (MLI)
indicates less liquidity of a cryptocurrency. This index takes into consideration price changes
hold throughout the entire transaction time.

(𝑃𝑡 −𝑃𝑡−1 )2
MLI =∑𝑇𝑡=1 (4)
𝑉𝑡

Where 𝑃𝑡 is the closing price on day t and 𝑉𝑡 is the daily traded volume on day t.

Price Delay Measure

Given the link between liquidity and information asymmetries, we include in our model
the Hou and Moskowitz (2005) Price Delay measure. Fama (1970) considers that in an efficient
market, prices should quickly incorporate new information without delay. This proxy evaluates
the process of information incorporation into prices. The higher the Price Delay, the lower the
price informativeness. Hou and Moskowitz (2005) considered several measures to capture the
average delay with which a firm’s stock price responds to information. The market return is
considered to be the relevant news to which stocks react and which is thus incorporated into
their prices. We consider the “D1” measure. The information incorporation of information into
prices for our sample of cryptocurrencies is supposed to be made at the daily level. To better
detect this information process, we compute the Hou and Moskowitz (2005) Price Delay
measure with daily returns (instead of weekly returns27). To calculate our delay measure we
choose the CRIX index as a market index. The CRIX Index28 is a monthly rebalanced cap-
weighted index including a dynamic number of constituents eligible on liquidity and market-
cap ranking rules, (Trimborn and Härdle, 2016). We perform the following time-series
regressions:

𝑟𝑗,𝑡 = 𝛼𝑗 + 𝛽𝑗 𝑅𝑚,𝑡 + 𝜖𝑗,𝑡 (5)

4
(−𝑛)
𝑟𝑗,𝑡 = 𝛼𝑗 + 𝛽𝑗 𝑅𝑚,𝑡 + ∑ 𝛿𝑗 𝑅𝑚,𝑡−𝑛 + 𝜖𝑗,𝑡 (6)
𝑛=1

27
Hou and Moskowitz (2005) compute the D1 measure with weekly returns. They justify their choice by
mentioning that they “focus on stocks with the most severe delay (frictions), whose lagged response often takes
several weeks”.
28
https://thecrix.de/

160
 𝑅²(𝐸𝑞2)
𝐷1 = 1 − (7)
𝑅²(𝐸𝑞3)

Where 𝑟𝑗𝑡 is the return on cryptocurrency j at time t and 𝑅𝑚,𝑡 is the return on the CRIX
value-weighted market index in day t. The D1 equals one minus the ratio between the R2 from
regression (5) and the R² from regression (6) which considers that the stock return is explained
not only by the contemporaneous returns of the market portfolio but also its 4 dates lagged
returns. For computing the cryptocurrency i ‘s D1 measure on day t, we perform regressions
(5) and (6) over a 60 days period before day t. We then compute the ratio of the two regression
R² and subtract it from one.

Size and Trading Volume

Size is the natural log of the market capitalization of each cryptocurrency. The trading
volume is the amount of coin that has been traded in the last 24 hours according to the
CoinMarketCap website.

Group 2: Privacy measure

Privacy coins are cryptocurrencies that hide data about their users, basically, the identity
of the user along with the amount of cryptocurrency traded and held in wallets. In general, it
states whether the users and/or the database are anonymous and respect the users’ privacy, or
not. The number of coins owned, sent, or received is not observable, traceable nor linkable by
way of transaction history on the blockchain. This variable is controlled using a dummy variable
that takes the value of 0 if the transaction is not private, 1 if it is private. If a cryptocurrency
offers a mix of both of them, we decide to code it as private. For example, Dash offers an
optional wat to hide transactions into a single transaction and distribute the coins to a new
address in a random way (PrivateSend).

161
 Group 3: Tokens

Among the 30 cryptocurrencies used in our study, tokens are included. Tokens are created
and issued generally to raise funds for a new project through fund-raising methods (such as
ICOs). Tokens are issued and backed using, generally, existing blockchains (for example, the
erc20 tokens are issued using the Ethereum blockchain) and are sold against famous
cryptocurrencies (generally Bitcoin or Ether). Investors buy these tokens, which they can sell
later on a secondary market (against traditional currencies) or keep them for use in the project.
The tokens are of different types: investment tokens (security tokens) whose purpose is to
realize a capital gain, securities of the project organization (equity tokens), or tokens allowing
access to a service or product of the project (utility tokens).

This is possible that regulation events have more impact on the cryptocurrency market if
they are tokens or not, especially because ICOs and the regulation on tokens are increasingly
growing. Table 1 presents some of theses ICOs interests by regions, for example recently, since
the PACTE law in France (April 2019), the AMF issue visa regarding ICO projects and provides
a blacklist of potential scam ICO projects.

TOK is a dummy variable where the variable is equal to 1 if the coin is a token and equal
to 0 otherwise.

Performance model

The first two steps of the method have mainly focused on the short-term impact of
regulation on cryptocurrencies’ returns. This sub-section deals with how regulatory events have
affected the performance of cryptocurrencies on a longer time horizon. The objective is to
analyze the impact on the market equilibrium at a longer time frame than the short term effect
assessed by the event study. Therefore, we compute cryptocurrencies’ long term performance
using traditional performance measures that are well-known in the literature. We focus on the
performance of a cryptocurrency portfolio composed of seven major cryptocurrencies, Bitcoin
(BTC), Ether (ETH), Litecoin (LTC), Tether (USDT), Ripple (XRP), Dash (DASH), Monero
(XMR).

The first measure we consider is the Sharpe Ratio. It adjusts excess returns for total (systematic
and diversifiable) risk.

162
 (𝑅𝑝 − 𝑅𝑓 )
𝑆ℎ𝑎𝑟𝑝𝑒 𝑅𝑎𝑡𝑖𝑜 = ⁄𝜎 (7)
𝑝

Where 𝑅𝑝 and 𝜎𝑝 are respetively the return and the standard deviation of the cryptocurrency
portfolio, 𝑅𝑓 is the risk-free rate considered as the one-month T-Bill return.

The second measure is the Jensen alpha based on the CAPM model.

𝑅𝑝,𝑡 − 𝑅𝑓,𝑡 = 𝛼 + 𝛽 ∗ (𝑅𝑚,𝑡 − 𝑅𝑓,𝑡 ) + 𝜀𝑡 (8)

Where 𝑅𝑝,𝑡 is the cryptocurrency portfolio return during period t, (𝑅𝑚,𝑡 − 𝑅𝑓,𝑡 ) is the return of
the market’s portfolio proxy in excess of the risk-free rate and 𝜀𝑡 is the error term.

Third, we estimate the cryptocurrencies’ performance using the Fama and French (1992) three-
factor model.
𝑅𝑝,𝑡 − 𝑅𝑓,𝑡 = 𝛼 + 𝛽1 ∗ (𝑅𝑚,𝑡 − 𝑅𝑓,𝑡 ) + 𝛽2 ∗ 𝑆𝑀𝐵𝑡 + 𝛽3 ∗ 𝐻𝑀𝐿𝑡 + 𝜀𝑡 (9)

Where 𝑅𝑝,𝑡 is the cryptocurrency portfolio return during period t, (𝑅𝑚,𝑡 − 𝑅𝑓,𝑡 ) is the return of
the market’s portfolio proxy in excess of the risk-free rate, 𝑆𝑀𝐵 (Small Minus Big) and HML
(High Minus Low) are the returns of the zero-investment factor-mimicking portfolios for size
and book-to-market (B/M) equity as proposed by Fama and French (1992), and 𝜀𝑡 is the error
term.

Fourth, we estimate the Carhart four-factor model adding the momentum factor, 𝑊𝐿𝑀 (Carhart,
1997).

𝑅𝑝,𝑡 − 𝑅𝑓,𝑡 = 𝛼 + 𝛽1 ∗ (𝑅𝑚,𝑡 − 𝑅𝑓,𝑡 ) + 𝛽2 ∗ 𝑆𝑀𝐵𝑡 + 𝛽3 ∗ 𝐻𝑀𝐿𝑡 + 𝛽4 ∗ 𝑊𝐿𝑀𝑡 + 𝜀𝑡 (10)

Where 𝑅𝑝,𝑡 is the cryptocurrency portfolio return during period t, (𝑅𝑚,𝑡 − 𝑅𝑓,𝑡 ) is the return of
the market’s portfolio proxy in excess of the risk-free rate, 𝑆𝑀𝐵 (Small Minus Big) and HML
(High Minus Low) are the returns of the zero-investment factor-mimicking portfolios for size
and book-to-market (B/M) equity as proposed by Fama and French (1992), WLM (Winner
Minus Loser) is the momentum factor as suggested by Cahart, 1997) and 𝜀𝑡 is the error term.

163
As previously said, our objective is to analyze the impact of regulation events on the
cryptocurrency market in the long-run. Therefore, we have to choose one period before the
events (PRE-period) and one period after the events (POST-period) in order to analyze the
performance before and after some regulation events.

Our entire regulatory events sample covers the period from 2015 to 2019. Figure 5 shows the
concentration of our sample events with respect to time and we find the most concentrated
period of events is from June 26, 2017, to October 19, 2018.

[Please insert Figure 5 about here]

The PRE-period is drawn from June 24, 2016, to June 24, 2017, and the POST-period is drawn
from October 21, 2018, to October 21, 2019. We decide to delineate the PRE-period to end two
days before June 26, 2017, to avoid capturing the regulatory events concentration period and
for computing the 3-days market-adjusted return. For the same reasons, we delineate the POST-
period to start two days after October 19, 2018 (see Figure 6). As a robustness test, we are
extending the study to the longest historical period possible (e.g., 437 days instead of 366)
in order to keep stable our seven cryptocurrencies in our portfolio. Indeed, these
cryptocurrencies are not all created on the same date and we aim to keep the same number of
components and the same components within our portfolio before having a reliable comparison
between the two periods.

[Please insert Figure 6 about here]

First, the Jensen’s alpha is estimated using a cryptocurrency index, the CRIX, as a market’s
portfolio porxy, 𝑅𝑚 . Second, since we have shown that cryptocurrencies can be considered as
securities, we use international global factors coming from the Kenneth R. French’s website
(Fama and French, 2012) that are normally used in the stock market for the 𝑅𝑚 , SMB, HML
(Fama-French model) and WML (Carhart model). The risk-free-rate,𝑅𝑓 , of the above models is
the one-month US Treasury Bill.

164
4.5 Empirical Results
4.5.1 Market Reaction results

In this part, we first analyze the investors’ reaction to the news that increases the
probability of a regulation adoption. We look at their first reaction and how they consider the
implementation of laws or regulations that makes the market more stable. Table 2 presents the
event return statistics. As mentioned before, we follow Campbell et al. (1997) and Armstrong
et al. (2010). In the first column (raw returns), we present the cryptocurrencies’ returns for each
one of the 63 events, where we calculate the three-day value-weighted return centered on the
event date. To mitigate the compounding effects of global news occurring concurrently with
our event dates, we calculate the cryptocurrencies’ average return using an estimation window
before the event date to exclude possible events that might influence the returns (second column
of Table 2).

The third column represents the difference between the raw return and the past average return
period, which is the observed abnormal return also called the “adjusted raw return”.

The results show that the mean raw return corresponding to the 63 events is 0.00313 ∗∗ and is
0.01754 ∗∗ for the Past average return. And that of the difference, which is the adjusted raw
return is −0.01461∗∗ . The last has turned out to be negative and significantly different from
zero, as emphasized by the T-test.

The negative result of the adjusted raw return indicates that investors have globally considered
these events as bad news, and thus, they have considered that the costs of a regulation adoption
would be higher than its benefits. This is consistent with our first hypothesis H1 that indicates
a negative relationship between events related to regulation and cryptocurrencies’ return.

Several factors could explain the previous negative results. The main argument is that many
investors may have been motivated to enter the crypto market mainly because it is a non-
regulated market, and due to the absence of additional transaction costs. Moreover, law- and
policy-makers are still weak in their actions due to technical aspects that need to be well
understood to be able to set regulations. This factor is possible to have led investors to the
creation of distrust towards financial regulators.

165
 [Please insert Table 2 about here]

Market reaction to events that treat cryptocurrencies under security laws (22 events)

We further investigated in our study and tried to isolate the events that treated
cryptocurrencies under securities law. The events that we considered are of a type that increases
the probability of a regulation adoption, and we particularly emphasized on events in countries
that consider that the crypto market is subject to securities law. An example of these events is
the July 26th, 2017 when the SEC considered ICO tokens as securities and subject to securities
laws. Our results show that the reaction was more negative and that there is an adverse and
more significant relation.

Table 3 shows that the mean raw return corresponding to the 22 events is −001577 ∗∗∗ and is
0.01754 ∗∗∗ for the Past average return and that of the difference which is the adjusted raw return
is −0.03331∗∗∗ . The last has turned out to be negative and more significantly different from
zero, concluded so by the T-test.

[Please insert Table 3 about here]

4.5.2 Cross-Sectional results

This section presents in detail the cross-sectional results. Table 4 presents the descriptive
statistics for the variables used in our model. Table 5 presents the Pearson correlation
coefficients between the variables. Regarding the table, it is clear that CMAR is significantly
correlated with a majority of variables.

[Please insert Table 4 about here]

[Please insert Table 5 about here]

Table 6 presents Fama-Macbeth regression summary statistics from equation 1. Column

(1) presents the obtained results from regressing CMAR over the cryptocurrency characteristics
(CET, ILIQ, MLI, Delay, Size, VOL, PRI, TOK). The results reveal that the Coefficient of
Elasticity of Trading (CET) is negative and significantly (at least, at the 10% level) related to
the dependent variable CMAR. This indicates that CMAR is less negative when the

166
cryptocurrency is more illiquid. In other words, investors have reacted less negatively to illiquid
cryptocurrencies. As one of the objectives of the regulation is to increase the cryptocurrency
market liquidity, these results could be explained by the fact that even though the investors
reacted negatively to these regulations, yet this reaction was less negative for illiquid
cryptocurrencies. Thus, investors might consider that the regulation is capable to reach its goals.

It is also shown in Table 6 that the Price Delay (Delay) measure, is positive and
significantly (at least, at the 10% level) related to the dependent variable CMAR. This indicates
that CMAR is less negative when Price Delay is larger (i.e; when there is more information
asymmetry), and investors react differently for cryptocurrencies with a high level of price delay
(i.e. cryptocurrencies for which the information took more time to be incorporated into prices).
For these cryptocurrencies, investors consider the regulation as a way for increasing the price
efficiency and thus perceive it more positively.

Moreover, regression from equation 1 shows that the size of cryptocurrencies is negative and
significantly (at least at the 10% level) related to the dependent variable CMAR. This indicates
that CMAR is less negative for firms that have low market capitalization. This could be
explained by the fact that these cryptocurrencies are less known and therefore less information
is disseminated about them.

[Please insert Table 6 about here]

4.5.3 Long-term performance results

Figure 7 presents the closing prices of the cryptocurrencies used inside the portfolio,
Bitcoin (BTC), Ether (ETH), Litecoin (LTC), Tether (USDT), Ripple (XRP), Dash (DASH),
Monero (XMR). Since the Bitcoin exhibit much higher closing prices than its peers, we cannot
clearly visualize the price movement of remaining cryptocurrencies in Figure 7. Therefore, to
solve this inconvenience, Figure 8 display the price variation of cryptocurrency without
considering the Bitcoin. The red area presents the PRE and POST periods observed in our
analysis.

[Please insert Figure 7 about here]

[Please insert Figure 8 about here]

167
Table 7 and 8 present the descriptive statistics for the performance models’ variables and for
the Pearson correlation coefficients respectively. The latter shows that the cryptocurrency
portfolio is lowly correlated with these portfolios except CRIX.

[Insert here – Table 7: Descriptive Statistics of variables used in performance regressions]

[Please insert Table 8 about here]

Table 9 presents the results of the performance regression analyses. During the PRE-period, we
obtain a positive and significant alpha with an annualized value of 178 percent for the Jensen
alpha using the CRIX factor. The CRIX coefficient is significant and positive. We obtain an
annualized alpha of 961.13% when we use the stock market 𝑅𝑚 from the Kenneth R. French’s
website. The Fama-French and Carhart model provides as well a positive and significant alpha
resp., 974.92 percent, and 973.98 percent. The Sharpe ratio is positive (0.22) as well during this
period.

However, during the post-period of our sample of regulatory events, we find a negative
performance using the Sharpe ratio (-0.022) and a non-significant performance with the alpha’s
performance models.

The alpha measure estimates the adjusted return taking into consideration the risk
premium associated with various factors. We take into account known risk premia in the stock
market such as the market risk premium, the size, the book-to-market, and the momentum
effects but there might be other risk premiums specific to cryptocurrencies that are not present
in the examined models. This would explain why in the pre-period we have a positive and
significant alpha which remunerates risks that are not included in the model, such as the
liquidity risk of, information asymmetry risk, etc.

In the post-event period, these risks might no longer exist and might be no longer remunerated,
making alpha insignificant. The events have therefore potentially mitigated perceptions of these
risks.

[Please insert Table 9 about here]

168
Our results are robust when we estimate the above regressions for longer PRE and POST
periods (437 days instead of 366), see Table 10 and Table 11.

When we increase the size of our subsamples (PRE and POST periods), we obtain a positive
and significant alpha of 143.13 percent for Jensen's model using the CRIX factor as a market
factor. Moreover, when we use the stock market factor of Fama-French to compute Jensen’s
alpha, we obtain an alpha of 801.65 percent. The Fama-French and Carhart models provide as
well a positive and significant alpha, resp. 837.34 percent and 833.95 percent. The alpha results
are all positive and significant but with a lower value than in the shortest PRE-period. During
the POST-period, all the alphas are not significant as well.

[Please insert Table 10 about here]

[Please insert Table 11 about here]

Table 12 shows that our regression does not seem to suffer from problems related to
homoscedasticity issue and time-series correlation (Durbin Watson). However, the normality
of the residuals is not respected. In future research, we will use RALS method of hedge fund
(Gallagher and Taylor (2000); Im and Schmidt (2008)) to manage this issue29.

[Please insert Table 12 about here]

4.6 Conclusion

Since its creation, the cryptocurrency market initiated with Bitcoin has been a subject
of debate within financial institutions and has encouraged a particular interest for scholars. To
date, more than 5,000 cryptocurrencies were created, indicating the rapid development of this
market. Over recent years the financial regulators and governments are striving to control the
market for several reasons. First, several reports emphasize a liquidity issue that the market may
suffer from, and the fact that several factors can make this market illiquid, the ability of

29
Alfieri et al (2019) show that using RALS does not change the quality of the Bitcoin performance results
obtained with OLS for Bitcoin during the period between September 2010 and December 2016.

169
participants to buy or sell crypto-assets is therefore limited. Second, the increasing interest in
the blockchain technology as a speculative tool for investing and achieving high returns in the
short term made it one of the most important reasons to stabilize the market and reduce its risk,
particularly for investors. Third, regulations enable generating significant revenues from new
sources whether it is from taxes or as a result of new laws.

As a consequence, our primary purpose in this paper was to capture investors’ reactions
to events and actions that increase the probability of a regulation adoption by applying an event
study. We aimed to assess how investors receive these events and whether they consider it as
‘good’ or ‘bad’ news. Our results show that investors have reacted negatively to possible
adoptions of regulations and that they considered these events as ‘bad’ news. Such results may
be backed-up by several reasons, including that many investors may have been motivated to
enter the market mainly because it is a non-regulated market, and due to the absence of
additional transaction costs. We further investigated in our study and tried to isolate the events
that treated cryptocurrencies under securities law, and we found that the reaction was worse
and that there was an adverse and more significant relation. The previous conclusion is
consistent with literature findings as in Auer and Claessens (2018) and Koenraadt and Leung
(2019) which showed that regulation would have a negative impact on the cryptocurrencies
return.

In the second part of our paper, we tried to explain if the different characteristics of
cryptocurrencies influenced changes in their value due to regulation news. We implemented an
empirical model while considering different microstructure variables that are widely used in
the prior literature, such as, the Amihud (2002) illiquidity measure, the Coefficient of Elasticity
of Trading, and the Hou and Moskowitz (2005) delay measure. We found that investors reacted
less negatively for most illiquid cryptocurrencies, as well as for cryptocurrencies that had more
information asymmetry measured by the process of information incorporation into prices. As
one of the objectives of the regulation is to increase the cryptocurrency market liquidity, these
results could be explained by the fact that, even though the investors reacted globally negatively
to these regulations, this reaction was less negative for illiquid cryptocurrencies.

Moreover, to assess the impact of the regulation on the longer-term performance of a

cryptocurrency portfolio composed of major cryptocurrencies (Bitcoin (BTC), Ether (ETH),
Litecoin (LTC), Tether (USDT), Ripple (XRP), Dash (DASH), Monero (XMR), we computed
cryptocurrencies’ long-term performance using traditional performance measures that are well-

170
known in the literature. After measuring a positive and significant performance in the pre-event
period, we find a non-significant performance in the post-event period.

To conclude, our results confirmed our expectations that these regulatory events have
had a negative impact on cryptocurrencies’ stock returns, both on the short and the longer term,
because this market was established in a decentralized manner and away from the supervision
of any government or regulating institutions and was attracting investors for these reasons. The
results concerning the performance measures are not surprising if we consider that a lower risk
exposure would result in a lower return. Indeed, this could lead to an insignificant impact on
the performance of cryptocurrencies.

171
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175
 Table 1: Historical regulation and tax principles around the World

This table presents the historical regulation and tax principles for different countries around
the world, thanks to a qualitative analysis of the literature review and reports concerning
cryptocurrencies’ regulations (e.g. The Law Library of Congress (2018), Global Legal Insights
(2019), Shirakawa and Korwatanasakul (2019), Houben and Snyers (2018)).

Country Legal Historical regulation Tax principles

North America

Commodities and Futures Trading Commission: Property tax rules

Commodity (September 2015, 23 august 2018 (Court))

USA Yes Internal Revenue Service: property (14 April 2014)

SEC: Tokens as security (6 February 2018)

FinCEN: Money (30 January 2014, 27 October 2014)

Canada Revenue Agency: Commodity Income Tax Act as a barter

transaction
Financial Consumer Agency: Pay goods and services as
a barter transaction Canadian Tax authorities:
taxed as a commodity
Currency Act: No legal tender (2015) (intangible)

Canada Yes Canadian Securities Administrators (CSA): Security

laws (respects the Investment Contract Test) for ICO
and tokens (24 August 2017)

Bill C-31: Money laundering and terrorist, Bitcoin as

money service business (19 June 2014)

Project Jasper: DLT experiment

Law to Regulate Financial Technology Companies: Not clear statutory rules

Mexico Yes Mean of payment and investment (28 march 2018)

No legal tender

South America

Bank Central: Money but no legal tender (28 May 2014) Income tax law
Not
Argentina Argentine Civil Code: Intangible asset as “Good” or
regulated
“Thing”

176
 Financial Information Unit: Controversial money, no
legal tender

Brazilian Federal Reserve Bank: Alters on the risk (19 Income tax on capital gains as
February 2014) "other assets" (2016)

Bill 1 (7 July 2015): Payment schemes (prohibition Reporting obligations to

discussions) exchanges and legal entities
and individuals holding
Brazilian Federal Reserve Bank: Not regulated, no legal cryptocurrency (May 2019)
Not
Brazil tender, no electronic money, alert on the risks (16
regulated
November 2017)

Comissao de Valores Mobilizairos (CVM): Concerns

about ICO (2017/2018)

Bill 2 (4 Avril 2019): Not securities but free to be issued,

transferred and used

Central Bank: no local currency (29 September 2016)

Superintendencia Financiera: Not currency, no legal

Not
Colombia tender, not security (06 June 2017)
regulated
Financial institutions are not authorized to protect,
invest, broker or manage cryptocurrency

Decree 3196: Authorization to create its cryptocurrency Not clear statutory rules
(Petro) backed by Venezuelian oil, financial asset, the
supervisory authority of cryptocurrency creation (8
December 2017)

National assembly: Petro is illegal. Only the Central

Bank can issue national currency (8 March 2018)
Venezuela Yes
Government: Petro is legal tender (9 April 2018)
Constitutional Decree on Cryptoassets and the
Sovereign Cryptocurrency Petro

Presidential Decree Nº 3.355,15 which created the

Superintendence on Cryptocurrency and Connected
Activities

Europe

UE = means of payment (no TVA) not Commodity Sales tax (VAT/GTS) not
European transposable to conversion fiat
Yes ECB: As virtual currencies (October 2012), convertible currency-bitcoin (22 October
Union decentralized virtual currency (February 2015), warns 2015)
about high risk (5 February 2018)

177
 ECB and Bank of Japan: Stella project about DLT
(December 2016)

Financial Action Task Force: As virtual currencies, a

medium of exchange and/or unit of account and/or store
of value, no legal tender (June 2014)

EBA: As virtual currency (4 July 2014), agreed with

European Commission about AMLD (December 2013,
July 2014 and August 2016)

European Commission: Fourth Anti-money laundering

Directive (AMLD), cryptocurrency as a mean of
payment

Proposal (5 July 2016), Agreed and Approved by the

Council (29 January 2018), Adopted by the European
Parliament (19 April 2018)

ESMA: Statement on ICO (November 2017), warn to

consumers

ESMA, EBA, EIOPA: As virtual currencies, no legal

tender, warn about risk (12 February 2018)

FinTech Action Plan: new tech (8 March 2018), launch

EU Blockchain Observatory and Forum

Banque de France: No real currency, no mean of Capital gain: taxation if

payment, volatility and illicit activities, conversion as a occasional or habitual (3
payment service (5 December 2013) February 2016)

The ordinance "Mini bons": blockchain definition (28 Gift tax: French wealth tax,
April 2016) transfer cryptocurrencies to
other
AMF: Digital asset fundraising support UNICORN
(October 2017)
In AMF and Prudential Supervisory Authority: Notice to
France
progress investors, warn about unregulation and volatility, no
financial instruments (4 December 2017)

Senate: Necessity of new legal framework, reduce illicit

activities, protection, and transparency for investors and
promote innovation (7 February 2018)

AMF: cryptocurrency derivatives, regulation of

exchange related to derivative under MiFID2 (22
February 2018)

178
 AMF: list of exchange without the requirement of AMF
(15 March 2018)

Ministry of Economy and Finance: Interested in the

regulation of ICO (in purpose for investors) (19 March
2018)

Ordinance blockchain authorization for more financial

instruments (1 July 2018)

National Assembly: Fact-finding mission on

cryptocurrency and on the blockchain (30 January 2019)

Action Plan for Growth and Transformation of

Companies (PACTE law): ICO with AMF visa optional,
numerical assets, protection of investors, Blacklist of
ICO and possibility to block websites (11 April 2019

German Federal Financial Supervisory Authority: Unit Transaction cryptocurrency vs

of account and financial instruments (19 December fiat currency: exempt of VAT
2013)
Transaction as a means of
German Government Public warning: No legal tender, payment: Not taxable for VAT
but substitute currency (2 February 2018)
Mining: Not taxable for VAT
Germany Yes German BaFin: Regulation of ICO as financial
instruments and tokens as securities (capital Digital wallets services:
investments or units or shares in investments funds) (20 Taxable activity for VAT
February 2018) Providing an exchange
German Federal Ministry of Finance: Guidance on platform: Taxable for VAT
value-added tax (VAT) (27 February 2018)

Tourism industry IrishCoin (17 May 2014) Normal basic principles

Central Bank of Ireland: In cases of ICO if a token is a

transferable security, then financial services legislation
(20 March 2018)
Not
Ireland Central Bank of Ireland: No legal tender, no regulated
regulated
by the CBI, high-risk speculative asset and not currency
(website)

Central Bank of Ireland: Alert on ICO, volatility

(December 2017)

Financial Sector Monitoring Commission (CSSF): warn If Income of cryptocurrency:

about risks, volatility, no protection, lack liquidity, lack commercial profit
Luxembourg Yes transparency, fraud money laundering, risks of ICO but
favorable at blockchain techno, no legal tender (14 If Income is not commercial
March 2018) profit: other income

179
 Minister of Finance: Currencies, no monetary regulation VAT exemption for CC
(26 June 2017), Major Bitcoin trading platform fully transactions
licensed payment service in Lux (BitFLyer) (27 January
2018)

Circular on specific tax aspects: Not a currency and not

legal tender, an intangible asset for direct tax purposes
(26 July 2018)

National Securities Commission & Bank of Spain: No Profits from cryptocurrencies:

legal tender and warn about risks (8 February 2018) Income Tax of Individuals
Spain Yes
Spanish law: No financial instrument, no currency, but Profits from bitcoin: exempt
ok for securities in ICO or chattels or commodities from value-added tax

Swiss Federal Government: As means of payment, no By individuals:

legal tender, not money (25 June 2014)
Wealth tax: cryptocurrencies
Commercial Register Office in the Canton of Zug: must be converted into Swiss
Accept Bitcoin and Ether for administrative costs and as Franc. Considered as assets
the contribution of forming a company (2 November (comparable with a bank
2017) deposit), subject to wealth tax

Municipality of Chiasso, in the Swiss Canton of Ticino: Income tax: Exempt in

Accept Bitcoin as a tax payment for amounts of up to general. Expect if part of
250CHF (1 January 2018) business asset of an individual,
Income tax
Swiss Financial Market Supervisory Authority -
Switzerland Yes Guideline for ICO treatment: No regulation, payment
tokens (cryptocurrencies) as mean of payment/mean of
By legal entities:
money and value transfer; utility token (digital access);
asset tokens: equities, bonds, and derivatives (16 Capital tax: Considered as cost
February 2018) of acquisition or converted (if
lower)
FINMA: Close down unauthorized providers of e-coin
(fake crypto), liquidated companies and warning about Corporate income tax: Any net
fake crypto (19 September 2017), regulatory aspects of taxable earnings from the sale
ICO in Switzerland (29 September 2017) of CC. Non-realized gains,
Income tax (market to market
Swiss State Secretariat for International Finance:
accounting)
Working group of blockchain and ICO (18 January
2018) VAT: legal tender

Bank of England: Not money (Q3 2014), Financial Income Tax depends upon the
Policy Committee, not a risk for financial stability but "activities and parties
United-
Yes the risk for investors (12 march 2018), Cryptoasset involved"
Kingdom
Taskforce, Risks (objective of stability, regulatory
framework, DLT) (29 October 2018)

180
 HM Revenue and Customs: No investment activity or VAT from suppliers for goods
payment mechanism (3 March 2014) and services transactions in the
UK
MLD5: No legal tender, means of exchange (transposed
in law 10 January 2020) Corporate tax (profit/loss):
Business with profit and loss /
General rules on foreign
exchange and loan relationship

Unincorporated business:
Income tax

Cryptocurrency transaction in
currency: Capital gains tax

Asia

Notice on Precautions Against the Risks of Bitcoins

(PBOC, MIIT, CBRC, CSRC, CIRC): Warn about the
risks, Bitcoin as a virtual commodity, no currency, ban
as currency (3 December 2013)

Announcement on Preventing Financial Risks from ICO

(7 central government regulators): Ban ICO (4
China Limited September 2017)

People’s Bank of China: Study of digital currency, not

a tool for retail payment (paper bills, coins or credit
card) (1 March 2018)

China Banking and Insurance Regulatory Commission

(CBIRC): WP (June 2018)

Guidance for a risk-based approach to virtual Consumption Tax (unit 1 July

Currencies (FATF) (June 2015) 2017)

Payment Services Act amended (June 2016) and effect Gains: "miscellaneous income"
(1 April 2017): As property value can be used as
Japan Yes
payment for goods and services, purchased,
transferable, exchangeable via an electronic system

Japan Virtual Currency Exchange Association (29

March 2018)

Financial Supervisory Service: not form financial National Tax Service (2017)
regulatory, not fiat currency, not electronic means, not
South Korea Yes financial investment instruments (23 June 2017), ban
loan in cryptocurrency (1 September 2017), ban ICO
that violate FSCMA (4 September 2017)

181
 Bank of Korea: task force on cryptocurrency (central
bank-backed crypto) (9 January 2018)

Real Name Verification System: Trades in

cryptocurrencies are allowed from real-name account
banks (30 January 2018)

Supreme Court of Korea: As criminal proceeds, as

property (30 May 2018)

Korean Financial Intelligence Unit: Guidelines, money

laundering

Financial Supervisory Service: Support cryptocurrency

trading and encourage institutions to facilitate the
transaction (20 February 2018)

Oceania

Digital Currency- Game Changer or Bit Player (August ATO rules

2015)

Committee recommendations government: tax

Australia Yes
treatment, (May 2016)

Australian Taxation Office guidance (last update 18

June 2019)

182
 Table 2: Market Reaction to Events Increasing the Adoption of Regulation (63 events)

This table presents the three-day returns centered on the 63 events considered as affecting the
likelihood of regulation adoption. Raw Return is the three-day return to the 30
cryptocurrencies, centered on the event date. Past Average Return is the average return using
an estimation window before the event date to exclude possible events that might influence the
returns (Figure 3). Adjusted Return is the difference between Raw Return and Past Average
Return.

Past Average
Date Raw Return Adjusted Return
Return

7/7/2015 0.01096 0.00006 0.01090

8/8/2015 -0.05164 0.00381 -0.05545

3/11/2016 0.01329 0.01039 0.00290

4/28/2016 0.01740 0.00479 0.01261

7/5/2016 -0.01606 0.00913 -0.02519

9/29/2016 0.00492 0.00368 0.00124

3/10/2017 0.01672 0.01102 0.00570

4/1/2017 0.07741 0.01333 0.06409

6/6/2017 0.00950 0.04079 -0.03129

6/26/2017 -0.03385 0.04470 -0.07856

7/25/2017 -0.08228 0.02924 -0.11152

8/18/2017 0.03999 0.02751 0.01248

8/24/2017 0.03294 0.02761 0.00532

9/4/2017 -0.06897 0.02237 -0.09133

9/5/2017 0.11510 0.02184 0.09326

9/8/2017 -0.09654 0.02055 -0.11709

9/19/2017 -0.03650 0.01079 -0.04729

9/29/2017 0.02321 0.00961 0.01360

11/2/2017 0.06770 0.01258 0.05513

11/6/2017 -0.01765 0.01476 -0.03241

183
11/16/2017 0.03937 0.01610 0.02327

12/1/2017 0.06980 0.02264 0.04717

12/4/2017 0.05897 0.02222 0.03674

12/8/2017 -0.05912 0.02247 -0.08159

12/9/2017 -0.06767 0.02235 -0.09002

1/1/2018 0.09978 0.02904 0.07074

1/8/2018 -0.12112 0.03311 -0.15424

1/17/2018 0.05010 0.03368 0.01642

1/18/2018 0.05587 0.03552 0.02035

1/27/2018 0.09829 0.03021 0.06809

1/30/2018 -0.09397 0.03242 -0.12639

2/2/2018 -0.01897 0.03304 -0.05201

2/5/2018 -0.05634 0.03013 -0.08647

2/6/2018 0.09059 0.02942 0.06117

2/7/2018 0.06278 0.02765 0.03512

2/8/2018 0.19592 0.02741 0.16851

2/12/2018 0.04876 0.02311 0.02565

2/16/2018 0.06928 0.02575 0.04353

2/19/2018 0.02170 0.02621 -0.00450

2/20/2018 -0.07675 0.02734 -0.10409

2/22/2018 -0.02164 0.02864 -0.05029

2/27/2018 -0.01624 0.02569 -0.04193

3/1/2018 0.03632 0.02478 0.01154

3/7/2018 -0.12912 0.02428 -0.15340

3/8/2018 -0.04764 0.02377 -0.07141

3/12/2018 -0.04244 0.02234 -0.06478

3/14/2018 -0.10937 0.01979 -0.12916

3/15/2018 -0.00618 0.01860 -0.02478

184
 3/19/2018 0.09050 0.01601 0.07449

3/20/2018 0.02159 0.01453 0.00706

3/28/2018 -0.10104 0.01030 -0.11134

4/19/2018 0.14308 -0.00603 0.14911

6/22/2018 -0.09683 -0.00564 -0.09119

7/1/2018 0.04598 -0.00806 0.05405

7/9/2018 -0.08342 -0.00375 -0.07966

7/26/2018 -0.00627 0.00099 -0.00726

8/23/2018 0.04923 -0.00790 0.05713

10/29/2018 -0.03021 -0.00095 -0.02925

1/30/2019 0.01117 -0.00859 0.01976

4/4/2019 0.02300 0.00398 0.01902

4/9/2019 0.00043 0.00906 -0.00863

4/11/2019 -0.05628 0.01003 -0.06631

6/6/2019 0.02951 0.01712 0.01239

Mean Return 0.00313 0.01774 -0.01461

185
Table 3: Market reaction to the news that treats cryptocurrencies under securities laws
(22 events)

This table presents the three-day returns centered on the 22 events that treat cryptocurrencies
under securities laws. Raw Return is the three-day return to the 30 cryptocurrencies, centered
on the event date. Past Average Return is the average return using an estimation window before
the event date to exclude possible events that might influence the returns (Figure 3). Adjusted
Return is the difference between Raw Return and Past Average Return.

Past Average
Date Raw Return Adjusted Return
Return

8/8/2015 -0.05164 0.00381 -0.05545

3/11/2016 0.01329 0.01039 0.00290

4/28/2016 0.01740 0.00479 0.01261

3/10/2017 0.01672 0.01102 0.00570

4/1/2017 0.07741 0.01333 0.06409

7/25/2017 -0.08228 0.02924 -0.11152

8/18/2017 0.03999 0.02751 0.01248

8/24/2017 0.03294 0.02761 0.00532

9/4/2017 -0.06897 0.02237 -0.09133

9/5/2017 0.11510 0.02184 0.09326

9/8/2017 -0.09654 0.02055 -0.11709

12/8/2017 -0.05912 0.02247 -0.08159

12/9/2017 -0.06767 0.02235 -0.09002

1/30/2018 -0.09397 0.03242 -0.12639

2/12/2018 0.04876 0.02311 0.02565

2/16/2018 0.06928 0.02575 0.04353

2/19/2018 0.02170 0.02621 -0.00450

3/7/2018 -0.12912 0.02428 -0.15340

6/22/2018 -0.09683 -0.00564 -0.09119

186
 7/9/2018 -0.08342 -0.00375 -0.07966

4/9/2019 0.00043 0.00906 -0.00863

6/6/2019 0.02951 0.01712 0.01239

Mean Return -0.01577 0.01754 -0.03331

187
 Table 4: Descriptive Statistics

This table presents descriptive statistics for the variables used in the regressions. The sample
comprises 1,155 observations. CMAR is the cryptocurrency's cumulative market-adjusted
return. Coefficient of Elasticity of Trading (CET), Amihud (2002) illiquidity measure (ILIQ),
Index of Martin (MLI), Price delay (Delay), Size ln(CAP) and Trading Volume (VOL) are the
variables used in the regression analyses.

Variables N Mean SD Median Q1 Q3

CMAR 1155 -0.01 0.13 -0.02 -0.09 0.04

CET 1155 12.25 73.34 2.08 -3.83 8.77

ILIQ 1155 0.00001 0.00 0.00 0.00 0.00

MLI 1155 0.00 0.00 0.00 0.00 0.00

DELAY 1155 -11.99 80.90 -0.43 -1.82 -0.10

ln(CAP) 1155 21.62 1.94 21.60 20.43 22.76

VOL 1155 18.37 2.46 18.53 17.06 19.92

188
 Table 5: Correlation Matrix

This table presents descriptive statisPearson correlations for the variables used in the
regression analyses. The sample comprises 1,155 observations. CMAR is the cryptocurrency's
cumulative market-adjusted return. Coefficient of Elasticity of Trading (CET), Amihud (2002)
illiquidity measure (ILIQ), Index of Martin (MLI), Price delay (Delay), Size ln(CAP) and
Trading Volume (VOL) are the variables used in the regression analyses.

Variables CMAR CET ILIQ DELAY MLI ln(CAP) ln(VOL)

CMAR 1 0,01 0,00 -0,02 -0,01 -0,07 -0,05

CET 1 -0,02 0,01 -0,02 -0,07 0,15

ILIQ 1 0,01 -0,01 -0,23 -0,26

DELAY 1 -0,07 0,06 0,06

MLI 1 -0,05 -0,16

ln(CAP) 1 0,85

ln(VOL) 1

189
 Table 6: Cross-sectional Analysis (Fama-Macbeth Regression)

This table presents the results from regressing the dependent variable CMAR over variables
that are used in our model and represents different cryptocurrency characteristics, namely:
Coefficient of Elasticity of Trading (CET), Amihud (2002) illiquidity measure (ILIQ), Index of
Martin (MLI), Price delay (Delay), Size (Size), Trading Volume (Vol), Privacy (PRI) and Token
(TOK); over the period 2014-2019. T-statistic is in parenthesis.

Variables Prediction CMAR

(t-statistica)

CET (-) (-1.89)

-0.000448

LILQ (+) (-1.63)

-248955.8

MLI No prediction (-0.59)

-577749

Delay (+) (2.08)

0.0800

Size (-) (-1.65)

-0.012925

Vol No prediction (0.67)

5.51 e-10

PRI No Prediction (-0.49)

-0.009182

TOK No prediction (0.36)

0.01668

Events 63

N 1155
R2 0.5137

190
 Table 7: Descriptive Statistics of variables used in performance regressions

This table presents summary statistics (mean, standard deviation (StD), median, sum,
minimum, maximum, annualized mean and annualized volatility) of daily returns expressed in
US $ for the dependent variable (Rptf-Rf) representing cryptocurrency portfolio return minus
the risk-free rate (proxied by the one-month US Treasury Bill) and for independent variables
(Rmkt-Rf (Crix) which reprensents the excess return of the market portfolio using the CRIX index

Rmkt-Rf (FF), which represents the excess return of the market portfolio using Fama-French
factor, SMB, which is the size premium, HML, which is the value premium, WML which is the
momentum factor). The data come from the Coinmarketcap and Kenneth R. French’s websites
over the PRE-period 24 June 2016 to 24 June 2017 and over the POST-period 21 October 2018
to 21 October 2019. All results are in percentages (%).

Mean SD
Variables N Median Sum Max Min Mean/year SD/year
(/day) (/day)
PRE-period
Rptf-Rf 366 0.669 3.044 0.401 245.004 13.538 -10.88 1041.816 58.160
Rmkt-Rf (Crix) 366 0.568 3.173 0.392 207.914 13.260 -15.98 690.577 6062.252
Rmkt-Rf (FF) 366 0.053 0.599 0.050 19.535 2.110 -5.11 21.502 1144.928
SMB 366 0.022 0.225 0.020 8.105 1.120 -0.64 8.418 430.684
HML 366 0.004 0.342 -0.030 1.500 1.580 -0.77 1.507 652.603
WML 366 -0.022 0.479 -0.015 -8.090 2.920 -1.71 -7.752 915.815
POST-period
Rptf-Rf 366 -0.078 3.531 0.174 -28.455 12.885 -13.40 -24.715 67.451
Rmkt-Rf (Crix) 366 0.027 3.869 0.151 9.974 15.925 -19.54 10.457 73.915
Rmkt-Rf (FF) 366 0.010 0.746 0.065 3.595 2.600 -2.44 3.650 14.252
SMB 366 -0.023 0.320 -0.020 -8.555 1.160 -1.33 -8.179 6.106
HML 366 0.000 0.384 -0.010 -0.175 1.910 -1.07 -0.174 7.335
WML 366 -0.018 0.506 -0.010 -6.425 1.560 -2.82 -6.207 9.662

191
 Table 8: Correlation matrix
This table presents the correlation matrix between the excess return of the cryptocurrency
portfolio (Rptf-Rf) and independent variables (Rmkt-Rf (Crix), Rmkt-Rf (FF), SMB, HML, WML).
The sample is drawn from the Coinmarketcap and Kenneth R. French’s websites over the PRE-
period 24 June 2016 to 24 June 2017 and over the POST-period 21 October 2018 to 21 October
2019

PRE-period
Rmkt-Rf Rmkt-Rf
Rptf-Rf SMB HML WML
(Crix) (FF)
Rptf-Rf 1.00 0.71 0.07 -0.02 0.06 -0.04
p-value 0.0000 0.1543 0.6518 0.2702 0.4410
Rmkt-Rf (Crix) 1.00 0.00 0.02 0.11 -0.07
p-value 0.9537 0.6393 0.0372 0.1561
Rmkt-Rf (FF) 1.00 -0.26 0.27 -0.39
p-value 0.0000 0.0000 0.0000
SMB 1.00 -0.04 0.10
p-value 0.4010 0.0460
HML 1.00 -0.27
p-value 0.0000
WML 1.00
POST-period
Rmkt-Rf Rmkt-Rf
Rptf-Rf SMB HML WML
(Crix) (FF)
Rptf-Rf 1.00 -0.11 0.02 0.02 0.01 0.02
p-value 0.0351 0.7690 0.7295 0.8952 0.6380
Rmkt-Rf (Crix) 1.00 -0.02 0.04 -0.01 0.03
p-value 0.7622 0.4319 0.8173 0.5433
Rmkt-Rf (FF) 1.00 -0.41 -0.35 -0.26
p-value 0.0000 0.0000 0.0000
SMB 1.00 0.22 -0.10
p-value 0.0000 0.0629
HML 1.00 -0.61
p-value 0.0000
WML 1.00

192
 Table 9: Performance models (366 days)
This table presents regression estimates for the four models (Sharpe, Jensen, Fama-French
and Carhart model). The sample is drawn from the Coinmarketcap and Kenneth R. French’s
websites over the PRE-period 24 June 2016 to 24 June 2017 and over the POST-period 21
October 2018 to 21 October 2019. ***, ** and * indicate that the coefficient is sig-nificant at
1%, 5% and 10% level respectively.

Annual
Sharpe Alpha R²
Models Crix_RF Mkt_RF SMB HML WML alpha
Ratio (%) (%)
(%)
PRE-period
Sharpe 0,220
Jensen
50,89
(CRIX) 0,28*** 0,68*** 178,10
p-value 0,01 <2e-16
Jensen
0,56
(FF) 0,65*** 0,38 961,13
p-value 0,00 0,15
Fama-
0,71
French 0,65*** 0,32 -0,07 0,36 974,92
p-value 0,00 0,27 0,92 0,46
Carhart 0,65*** 0,31 -0,07 0,35 -0,04 0,71 973,98
p-value 0,00 0,32 0,92 0,48 0,92
POST-period
Sharpe -0,022
Jensen
1,21
(CRIX) -0,08 -0,10** -23,96
p-value 0,68 0,04
Jensen
0,02
(FF) -0,08 0,07 -24,91
p-value 0,67 0,77
Fama-
0,11
French -0,07 0,15 0,31 0,11 -23,08
p-value 0,70 0,61 0,63 0,84
Carhart -0,06 0,48 0,53 0,96 0,83 0,61 -18,22
p-value 0,77 0,20 0,42 0,24 0,18

193
 Table 10: Descriptive Statics of variables used in performance regressions for longer
periods of time

This table presents summary statistics (mean, standard deviation (StD), median, sum,
minimum, maximum, annualized mean and annualized volatility) of daily returns expressed in
US $ for the dependent variable (Rptf-Rf) representing cryptocurrency portfolio return minus
the risk-free rate (proxied by the one-month US Treasury Bill) and for independent variables
(Rmkt-Rf (Crix) which reprensents the excess return of the market portfolio using the CRIX index

Rmkt-Rf (FF), which represents the excess return of the market portfolio using Fama-French
factor, SMB, which is the size premium, HML, which is the value premium, WML which is the
momentum factor). The data come from the Coinmarketcap and Kenneth R. French’s websites
over the PRE-period 14 April 2016 to 24 June 2017 and over the POST-period 21 October
2018 to 31 December 2019. All results are in percentages (%).

Variables N Mean SD Median Sum Max Min

Panel A : PRE period
Rptf-Rf 437 0,613 2,887 0,355 268,039 13,538 -10,880
Rmkt-Rf
(Crix) 437 0,567 3,154 0,436 247,800 13,260 -15,983
Rmkt-Rf
(FF) 437 0,052 0,604 0,050 22,795 2,110 -5,110
SMB 437 0,024 0,240 0,025 10,525 1,120 -0,770
HML 437 0,002 0,339 -0,030 1,080 1,580 -1,210
WML 437 -0,008 0,510 -0,015 -3,610 2,920 -1,710
Panel B : POST period
Rptf-Rf 437 -0,129 3,403 0,089 -56,237 12,885 -13,405
Rmkt-Rf
(Crix) 437 -0,013 3,749 0,083 -5,481 15,925 -19,538
Rmkt-Rf
(FF) 437 0,035 0,698 0,090 15,135 2,600 -2,440
SMB 437 -0,012 0,302 -0,010 -5,325 1,160 -1,330
HML 437 -0,008 0,374 -0,020 -3,515 1,910 -1,070
WML 437 -0,018 0,493 0,000 -8,055 1,560 -2,820

194
 Table 11: Period Models for longer periods of time

This table presents regression estimates for the four models (Sharpe, Jensen, Fama-French
and Carhart model). The sample is drawn from the Coinmarketcap and Kenneth R. French’s
websites over the PRE-period 14 April 2016 to 24 June 2017 and over the POST-period 21
October 2018 to 31 December 2019. ***, ** and * indicate that the coefficient is significant at
1%, 5% and 10% level respectively.

Alpha R² Annual
Models Crix_RF Mkt_RF SMB HML WML
(%) (%) alpha
PRE-period
Jensen
50.74
(CRIX) 0.24*** 0.65*** 143.13
p-value 0.000 <2e-16
Jensen
0.13
(FF) 0.60*** 0.17 801.65
p-value 0.000 0.450
Fama-
0.30
French 0.62*** 0.10 -0.31 0.28 837.34
p-value 0.000 0.679 0.595 0.510
Carhart 0.61*** 0.14 -0.32 0.32 0.12 0.33 833.95
p-value 0.000 0.596 0.588 0.462 0.693
POST-period
Jensen
0.97
(CRIX) -0.13 -0.09 -37.76
p-value 0.424 0.040
Jensen
0.02
(FF) -0.13 0.06 -37.57
p-value 0.431 0.787
Fama-
0.08
French -0.13 0.12 0.29 0.06 -37.57
p-value 0.431 0.640 0.623 0.900
Carhart -0.12 0.43 0.48 0.85 0.77 0.52 -34.70
p-value 0.476 0.214 0.428 0.250 0.169

195
 Table 12: Residual Analysis
This table presents the residuals analysis from the long-run regressions in the PRE and POST
periods. The sample is drawn from the Coinmarketcap and Kenneth R. French’s websites over
the PRE-period 14 April 2016 to 24 June 2017 and over the POST-period 21 October 2018 to
31 December 2019.The residuals autocorrelation hypothesis is tested using the Durbin-Watson
statistic: if the Durbin-Watson statistic is around 2 and the null-hypothesis of non-
autocorrelation is accepted, then the residuals are considered uncorrelated. The
homoscedasticity hypothesis is tested based on the studendized Breusch-Pagan: if the p-value
is lower than 5 per cent, the null hypothesis of homoscedasticity is rejected. The normality
hypothesis is based on the Shapiro-Wilk test: if the p-value is lower than 5 per cent, the null
hypothesis of normality is rejected.

Autocorrelation Homoscedasticity Normality

(Durbin- (studentized (Shapiro-
Watson) Breusch-Pagan) Wilk)

PRE-period
Jensen
1.99 6.35
(CRIX) 0.94
p-value 0.944 0.01174 0
Jensen
1.86 0.00
(FF) 0.92
p-value 0.15 0.9922 0
Fama-
1.85 3.27
French 0.92
p-value 0.13 0.3517 0
Carhart 1.85 4.02 0.92
p-value 0.154 0.4037 0
POST-period
Jensen
1.88 0.05 0.93
(CRIX)
p-value 0.26 0.8283 0
Jensen
2.09 3.56
(FF) 0.93
p-value 0.446 0.05928 0
Fama-
2.09 3.71
French 0.93
p-value 0.41 0.2941 0
Carhart 2.12 3.77 0.94
p-value 0.33 0.4387 0

196
Figure 1: Taxonomy of money adapted from the Bank for International Settlements in 2017 (Bench
and Garratt, 2017).

Figure 2: Short-term market reaction predictions (H1)

Increase of the (+)

number of investors Positive reaction
interested in the (Positive abnormal
market return)

Implementing
regulation

Decrease of the (-)

number of investors Negative reaction
interested in the (Negative abnormal
market return)

197
Figure 3: Short-term market reaction prediction (H2)

Amplify (+) or (-)

reaction from H1
1. Market quality
variables Mitigate (+) or (-)
reaction from H1

Amplify (+) or (-)

reaction from H1
2. Privacy
measure Mitigate (+) or (-)
reaction from H1

Amplify (+) or (-)

reaction from H1
3. Token
characteristic Mitigate (+) or (-)
reaction from H1

Figure 4: Event study Timeline

198
 Figure 5: Histogram of Events

Figure 6: PRE and POST periods Timeline

199
 Figure 7: Closing prices of the seven crypto-currencies in the portfolio

Figure 8: Closing prices of crypto-currencies in the portfolio except Bitcoin

200
Chapter 5

201
 Chapter 5: General Conclusion

A
fter the repeated occurrences of financial crisis in the near past, particularly
the most recent crisis in 2008, the discussion about the necessity of
introducing reform in financial markets received great attention. These
discussions were led by regulators and public authorities. One of the main purposes of the
proposed regulations is to improve the efficiency of financial markets and to avoid any potential
financial crisis in the future. During this epoch, there was a particular concern about the tools
that should be used to improve the quality of financial markets. One of the proposals about
regulating the stock market was to reconsider the application of a previously existing tax that
was established ahead of time in response to different situations. The latter tax we are talking
about is the financial transaction tax also known as the Tobin tax. This tax was developed as a
theory by the American famous economist James Tobin in 1972 in order to reduce speculative
transactions in financial markets and to control the effects of exchange rate volatility for
avoiding currencies’ bubbles. A large number of academic papers tried to investigate the impact
that such a tax could have on the quality of financial markets. This proposal leads to distinct
opinions among scholars and regulators which divided them between proponents and opponents
to the tax with some arguments in the favor of each side.

In this dissertation, we investigated the impact of this tax on the functioning of stock
markets by measuring the effect that the tax could have on different measures of market quality,
and in particular on the market efficiency. More importantly, our interest was also to capture
the investors’ reaction or the stock market response to the (possible) adoption of the FTT.

In light of these discussions, we also found it interesting to broader our view about the impact
of financial market regulations, and to focus on a more recent market, developed after the 2008
financial crisis, and which is the cryptocurrency market. Our previous interest was driven by
the 2008 crash that occurred in the cryptocurrency market, and thus the existing efforts to
propose tools to regulate this market and prevent cryptocurrency crisis in the future. These
factors made public authorities around the world (whether in Europe, United States and Asia)
believe that 2019 is the year of application of regulations in this market.

As a result, in this thesis dissertation, we have been interested in investigating the impact of
regulation on the cryptocurrency market, and to study to what extent the regulation adoption or

202
the regulation announcements could be welcome by the market participants and could thus
influence the assets’ returns on this new market. Throughout our research in this thesis, we
conduct three empirical studies within three related chapters all of which answer one main
global question:

What is the impact of financial markets regulations on market quality and asset returns?

Although many studies acknowledge the importance of financial regulation, there is a

lack in the literature on the impact of a financial transaction tax on the efficiency of financial
markets within an information asymmetry context. We were particularly interested to
investigate the impact of regulation on securities transactions. We conducted three empirical
studies that address this gap and that answer our main research question. In the first chapter
‘How the French Securities Transaction Tax Affects the Quality of Financial Markets:
Information Efficiency and Liquidity’, using 101 listed French stocks that are subject to the
French tax, we assess the impact of the French securities transaction tax on the quality of the
French market. In particular, this paper raises the question of whether this tax delays the process
of information incorporation into prices for taxable stocks. In the second chapter ‘Market
Reaction to the Financial Transaction Tax Adoption in Europe’, we assess the impact of the
FTT implementation process on eight European countries that are involved in the European
Union financial transactions tax project. The third chapter ‘Long and short-term Impacts of
Regulation in the Cryptocurrency Market’ examines whether cryptocurrency traders perceive
the market regulation in a beneficial or a costly way. Using a sample consisting of the top thirty
cryptocurrencies in terms of market capitalization, we assess how regulatory news and events
have affected returns in the cryptocurrency market.

5.1 Summary of results

The second chapter of this thesis dissertation assesses the impact of the French STT
implemented on August 1st, 2012 on different measures of market quality. In particular, we
studied the link between informational efficiency and tax implementation. Even though many
studies have examined the impact of the tax on different measures of market quality, yet the
outstanding literature does not provide much evidence about the impact of the FTT on the
process of information incorporation into prices. We analyze to what extent the implementation
of the French STT affects or alters stocks information efficiency. We analyze whether this tax
increases or decreases the speed of information diffusion into prices for French stocks that are

203
subject to the tax. More precisely, we ask the following question: do rational investors who
observe market prices in order to extract some information about the future payoffs of risky
stocks manages to learn more rapidly the relevant news since the implementation of the STT?
Using a difference-in-difference methodology and a treatment group consisting of French
stocks that are subject to the French tax (shares issued by French companies with a market
capitalization of more than one billion euros), we found that market efficiency was negatively
affected by the tax implementation. Considering the Hou and Moskowitz (2005) Price delay
measure, we show that the French STT has delayed the process of information incorporation
into prices for taxable stocks. This result means that information took more time to be
incorporated into prices. As for the firm-specific return variation (FSRV) measure of Durnev
et al. (2004), we noticed an increase in this indicator in the period that followed the tax
implementation. This reflects the fact that the level of noise is higher and the information
asymmetry between investors stronger for taxable stocks after the tax introduction. At the same
time, we observed a significant impact on market liquidity measures, such as the trading volume
and the Amihud illiquidity ratio, the STT decreasing the liquidity of taxable stocks.

The third chapter of this thesis dissertation mainly focused on the impact of the European
Union commission’s proposal for a common tax on financial transactions in Europe that was
announced on the 28 of September 2011 on European stock markets. Using 407 European firms,
we assess the impact of the FTT implementation process on eight European countries that are
involved in the European Union financial transactions tax project. We first analyze the equity
market returns’ reaction to events increasing the probability of an FTT adoption in Europe. This
allows us to investigate investors’ perceptions of the FTT externalities. We started by
questioning whether the information related to each event that contributed to this tax adoption
is reflected in stock prices. Our first objective in this study was to investigate whether European
traders perceive the market regulation in a beneficial or costly way. We conducted an event
study methodology30 around a number of events that we consider as increasing the probability
of a tax adoption in Europe. Our findings show that these events have negatively affected stock
returns. This suggests that investors considered that the cost of the tax adoption would be higher
than its benefits.

Another contribution of this paper was to explore whether particular firm characteristics
explain cross-sectional variations in firms’ return reactions to the tax events. We hypothesis

30
We follow Armstrong et al. (2010) who investigate the stock market reactions to the IFRS adoption.

204
that some firm characteristics may mitigate or amplify the stock returns reaction to events
increasing the probability of a tax adoption in Europe. In other words, we consider that the
magnitude of the returns’ reaction will not be the same across all firms. Based on firms’
characteristics (i.e. information asymmetry, liquidity, and an institutional indicator) we classify
three different groups in order to assess whether particular firm characteristics explain the cross-
sectional variations in firms’ return reactions. For example, we assume that investors could
react more positively or less negatively for firms that are traded a lot by noise traders and whose
prices are not efficient. For these stocks, investor may expect the financial transaction tax to
improve the information efficiency and the trading quality.

We found that the magnitude of the returns’ reaction was not the same across all the
European firms. In detail, we find more negative reactions for European firms with lower
liquidity. For these stocks, investors may expect the tax to even worsen the liquidity. Moreover,
the cross-sectional results show that for stocks submitted to high information risk, the events
are welcomed by investors as positive news and the tax is seen as reducing information
asymmetry risk. These results are consistent with investors expecting the application of a
financial transaction tax to improve the information quality for these latter stocks. As for the
last factor we considered (namely Legal Enforcement), we found a positive reaction for firms
that are located in countries with higher legal enforcement. This suggests that the event is
welcomed by investors as positive news in countries that have good legal enforcement. We can
interpret these results by considering that as much as there is a good application of laws, an
efficient judicial system, and a low level of corruption, as much as investors could believe that
the application of any new tax or regulation will decrease the risk related to the concerned
market (i.e. where the tax has been implemented), and correct the market failures, then the stock
returns’ reaction to events increasing the probability of a tax adoption is positive.

Our fourth chapter examined the impact of regulations on the cryptocurrency market. This
study is one of the very few attempts that have investigated the impact of regulation on the
cryptocurrency market. Although there is a wide consensus (e.g., Carney (2018), Central Bank
Governors, Financial Stability Board (FSB 2018), US Securities and Exchange Commission
(SEC 2017), Zetsche et al. (2019)) that it is necessary to regulate the cryptocurrency market,
there are several different points of view about this issue. In order to assess how cryptocurrency
traders perceive the market regulation, we first use an event study methodology to assess this
impact on a short-term period. We select 63 events across the world which refer to a regulation
adoption or that might increase the likelihood of a regulatory adoption. Our findings show that

205
investors have reacted negatively to the possible adoption of regulations on the cryptomarket
and that they considered these events as ‘bad’ news. We further investigated in our study and
tried to isolate the events that treated cryptocurrencies under securities law. We particularly
emphasized on events in countries that consider the cryptomarket as subject to the securities
law. Our results show that the reaction was more negative and that there is an adverse and more
significant relation between the events and the cryptocurrency retuns. We also conduct further
analysis by assessing whether specific cryptocurrency characteristics, and in particular their
liquidity, explain cross-sectional variations in cryptocurrencies’ return reactions. We focused
on liquidity variables as several financial and government reports (e.g. FSB, the G20) shed light
on liquidity risk. It has been documented that the market liquidity appears to be one of the
primary risks concerns and increasing cryptocurrency market liquidity is a major objective of
several regulatory events. We found that investors reacted less negatively to regulatory events
for most illiquid cryptocurrencies, as well as for cryptocurrencies that are submitted to more
information asymmetry.

In the second part of this paper, we discussed how regulatory events have affected the
performance of cryptocurrencies on a longer time horizon. This paper is the first empirical study
to investigate the impact of regulation on the cryptocurrency market on a rather long period
horizon. We computed cryptocurrencies’ long term performance using traditional performance
measures that are well-known in the literature such as the ‘Sharpe ratio’, ‘Jensen alpha’, ‘Fama
and French alpha’, and the ‘Carhart four-factor model alpha’. We conducted this study focusing
on the performance of a cryptocurrency portfolio composed of seven major cryptocurrencies.
We chose one period before the events (PRE-period) and one period after the events (POST-
period) in order to analyze the performance before and after some regulation events. The
findings were interesting. We found that the performance in the pre-event period is positive and
significant; however, it appears to be not significantly different from zero in the post-event
period. We postulated that the reason behind these results is that there might be other risk
premiums specific to cryptocurrencies that are not present in the examined models, while we
take into account known risk premia in the stock market such as the market risk premium, the
size, the book-to-market, and the momentum effects. This would explain why in the pre-period
we have a positive and significant alpha which remunerates risks that are not included in the
model, such as the liquidity risk and information asymmetry risk. In the post-event period, these
risks might no longer exist and might be no longer remunerated, making alpha insignificant.
The events have therefore potentially mitigated perceptions of these risks.

206
5.2 Research contributions

In this part of the conclusion, I will discuss the main contributions of this Ph.D.
dissertation. We believe that this thesis mainly contributes to a better understanding of the
impact of regulations on the functioning of financial markets. This thesis offers insights into
the growing financial transaction tax literature in which we provide new evidence about the
impact that such a reform could have on the quality of financial markets. The empirical
literature about the impact of such regulations on market returns and other market quality
variables still needed new insights. We thus aim as much as possible to fill a part of this gap
through this thesis dissertation.

Each of the three empirical studies contributes to the literature in several ways. In the
first paper, we focused on the French stock market and we investigated the impact of the French
STT on the informational efficiency. Several papers (Becchetti et al. (2014); Capelle-Blancard
and Havrylchyk (2016); Colliard and Hoffmann (2017)) have examined the impact of the
French STT introduction in August 1st, 2012 on different measures of market quality; however,
the outstanding literature does not provide much evidence about the impact of the tax on the
information incorporation process into prices. We believe that this paper offers a better
understanding of this issue. Indeed, one of the most important contributions of this paper is to
answer a question which has not been yet precisely addressed in the financial literature: do
investors manage to learn more rapidly, by observing asset prices, the relevant news
surrounding a firm since the implementation of the STT, or not? In other words, does the stocks
prices incorporate the relevant information faster since the implementation of the STT? Our
second contribution is a methodological one. We use the Hou and Moskowitz (2005) Price
delay measure to assess the impact of the STT on the speed of information diffusion into prices.
This measure is particularly relevant to address the previously mentioned research question and,
to the best of our knowledge, this paper represents the first study that considers this measure
and analyzes the link between the STT implementation and the delay with which prices react
to information. Finally, in this paper, given the link put forward in the relevant literature
between liquidity and information efficiency, we study the effect of the tax on liquidity by
considering major measures of market liquidity. By showing that the STT increases the delay
of information incorporation into prices, this article could advise financial market authorities
and firms to disclose information more intensively for taxable stocks.

207
 There is a gap in the literature concerning the use of an event study methodology in
empirical papers which investigate the impact of the Tobin taxation. Our second study
contributes to this matter. We analyze the equity market returns’ reaction to events increasing
the probability of an FTT adoption in Europe. Our purpose in this paper is to investigate the
European stock market response to the adoption of the FTT in France and to additional events
which increase its adoptions in other European countries. The contribution of this article is thus
to offer a better view of the investors’ perception of the FTT externalities. In particular, we put
forward the fact that they anticipate negative externalities of the FTT. This result could be
helpful to policy makers, financial market authorities, and even investors, being aware of the
short-term impact on stocks returns of events increasing the probability of an FTT adoption in
Europe.

In our third paper, we meant to study the impact of regulations on the functioning of a
recent market under development since the 2008 financial crisis, namely the cryptocurrency
market. Until today, there is a lack of studies that investigate the impact of a regulation on the
cryptocurrency market. However, even though these studies are rather few, they show similar
findings, such as Auer and Claessens (2018) and Koenraadt and Leung (2019) who expose that
a regulation would have a negative impact on the cryptocurrencies’ returns. In our study, we
are interested in deepening this question by assessing how cryptocurrency users receive
regulatory news with an event study framework. Finally, we delve beneath this problematic by
widening the research scope through investigating not only the impact on the short-term but
also on a longer-term period which has been ignored until now in the literature.

Altogether, our thesis dissertation gives guidance to active actors in three different
fields: academic body, managerial specialists, and regulatory authorities.

1. Academic body: We contribute by proposing a state of the art and new research developments
in the academic literature concerning the financial transaction tax on the stock market as well
as regulation of the crypto market.

2. Managerial specialist: The dissertation helps investors and professionals to understand the
possible impact that such regulations could have on the functioning of financial markets, and
better anticipate the short term and longer-term impacts of these regulations.

208
3. Regulatory authorities: we hope that our dissertation will be a useful material to public
authorities as it offers new insights about the effectiveness of the implementation process of
such type of regulations.

5.3 Limits and further research

Lastly, in this part of the conclusion, I will discuss the main limits and the potential
future research topics that could be treated in the future. The dissertation presents a number of
limitations, some of which offer interesting avenues for future research.

The main limit of the first study is to only focus on the French stock market. This offers
insights that may be interesting for academics and practitioners as well as for other European
countries aiming at adopting an STT. However, one should think that these results about the
information transmission process into prices depend on the initial level of information
asymmetry of the considered stocks. It is also to notice that taxable stocks in France concern
big size firms and were thus certainly submitted to low informational asymmetries before the
tax implementation. Our results may thus not be totally generalizable for a tax implementation
in another country for another type of stocks. Carrying such an analysis for a tax implemented
on less well-known stocks, in another context, may be an interesting issue to study in the future.

Another avenue for future research concerns the investors’ attention to speculation. Since a
major announced objective of the STT implementation is to reduce speculation on financial
markets, we could analyze the attention of French investors to speculation and how it has
evolved with the implementation of the STT. We could further study the role played by the
French attention to speculation for information efficiency. We could assume that the French
attention to speculation (as appraised, for instance, by using Google Trends) is an indicator of
the investors’ fear to trade against speculators. We could thus hypothesize that, if the French
attention to speculation is high, the implementation of the STT may have been perceived as
decreasing the risk to trade against speculators, in particular for rational investors who trade
based on their information. The active attention to speculation of French investors may thus
encourage them to trade more intensively taxable stocks. For these stocks, they might be less
afraid to trade against speculative agents. Fundamental investors trading more intensively on
the basis of their information may thus help the price efficiency of taxable stocks. Analyzing
the link between French active attention to speculation and price efficiency for taxable stocks
represents an interesting project for future research.

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 As far as our second article is concerned, a particular constraint for analyzing the impact
of the FTT in European stock markets resides in the fact that this tax is not yet applicable in
Europe globally speaking (although there are similar taxes such as the French securities
Transaction Tax which is applied locally in France). This justifies our choice to analyze events
that increase the probability of an FTT adoption rather than only events of the real adoption of
an FTT. Our analysis could be deepened in the future if and when a significant number of
European countries implement a financial transaction tax on their financial markets. Analyzing
several FTT adoptions, in different stock markets, with different market functioning rules
promises to offer interesting insights. Indeed, the potential effect that regulations could have on
financial markets quality depends on the composition of the trader population, the
characteristics of the assets traded, and the organization or microstructure of the market. All
these factors vary across countries and over time.

Finally, the fourth chapter meets also some limits. As mentioned in the dissertation,
there is no agreement concerning the nature of cryptocurrencies, as some countries consider
them as assets or commodities, while other countries consider them as means of payment or
currencies. In our study, we consider cryptocurrencies as common stocks as presented in the
papers of Alfieri et al. (2019), Baur et al., (2016) and Glaser et al., (2014). This view about the
nature of cryptocurrencies could be more deeply investigated in the future to provide a common
basis for later studies. Moreover, we faced another limitation in this dissertation, precisely in
the second part of our study where we discussed how regulatory events have affected the
performance of cryptocurrencies on a longer time horizon. As previously mentioned, this paper
is the first empirical study to investigate the impact of a regulation on the cryptocurrency market
on a rather long period horizon. The problem we faced is that the cryptomarket is relatively new
and we were thus obliged to use a medium period rather than a trully long period, as some
cryptocurrencies have been created very recently and do not offer long historical data. We hope
that, in the near future, more complete studies can be held by considering longer periods.

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Résumé

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 Résumé en français

S
uite aux crises financières répétées de ces dernières décennies, et en particulier
la crise des Subprimes de 2008, la nécessité de réformer les marchés financiers
a fait l'objet d'une grande attention. Ces discussions ont été menées par les
régulateurs, les institutions financières et les autorités publiques. L'objectif principal des
réglementations proposées est d'améliorer l'efficacité des marchés financiers et d'éviter toute
crise financière potentielle à l'avenir.

À cette époque, les outils utilisés pour améliorer la qualité des marchés financiers ont
fait l'objet d'une attention particulière. L'une des propositions concernant la réglementation du
marché des actions était de reconsidérer l'application d'une taxe qui existait déjà et qui avait été
établie à l'avance en réponse à différentes situations. Il s’agit de la taxe sur les transactions
financières (TTF), également connue sous le nom de taxe Tobin, développée en théorie par le
célèbre économiste américain James Tobin en 1972. L’objectif de cette taxe était de réduire les
transactions spéculatives sur les marchés financiers et de contrôler les effets de la volatilité des
taux de change, et ce afin d'éviter les crises de change.

Néanmoins, l'idée d'introduire une taxe sur les marchés financiers remonte aux années
qui ont suivi la crise économique de 1929. En effet, c’est l’économiste John Maynard Keynes
qui propose pour la première fois de réguler les marchés financiers via la mise en place d’une
taxe afin (1) de permettre aux gouvernements de contrôler les mouvements des transactions
spéculatives qui augmentent le niveau de volatilité des marchés mais également (2) de générer
des revenus importants pour les gouvernements. Cette proposition ne concernait à l’époque que
les opérations boursières de Wall Street et visait spécifiquement à maintenir la stabilité des prix.

Après ce rappel du contexte historique, nous présentons dans ce qui suit un bref aperçu
des exemples de TTF les plus connus et nous donnons quelques exemples de mise en place
d’une taxe similaire par différents Etat. Ceci nous conduira à présenter deux projets de taxes
plus récentes : celui de la taxe européenne sur les transactions financières commune dans tous
les états membres de l’union européenne et celui de la taxe française qui a été implémentée en
août 2012.

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 Un des exemples bien connu de TTF est le droit de timbre britannique « Stamp Duty ».
L'histoire de cet impôt remonte aux années 1600 et s'est poursuivie sans interruption dès lors.
Le « Stamp Duty » britannique rapporte au pays entre 2,5 et 4 milliards de livres sterling chaque
année. La raison du succès de cette taxe est l'application du principe du lieu d'émission. Cela
signifie que c'est la nationalité de la société qui émet les actions qui détermine
géographiquement le champ d'application de la taxe, et ce plutôt que la nationalité des
intermédiaires qui effectuent la transaction. Ceci permet d’une part de réduire le risque
d’évasion fiscale.

Un autre exemple très connu dans la littérature est l’expérience Suédoise. En 1984, la
Suède a introduit une taxe sur les transactions financières. Le gouvernement suédois a décidé
d'introduire une taxe de 0,5 % sur l'achat ou la vente d'actions. Cette TTF a été un échec, selon
Umlauf (1993) qui a étudié ses effets sur le comportement des rendements des actions
suédoises. Plus de la moitié des transactions d'actions de sociétés suédoises cotées en bourse et
à grande capitalisation ont migré vers Londres, qui était alors un lieu exempté de taxe. Cet échec
était dû au fait que la taxe suédoise n'était appliquée qu'aux transactions effectuées par des
intermédiaires suédois (contrairement à la taxe britannique), ce qui permettait de l'éviter très
facilement. Pour les investisseurs étrangers, il était alors aisé d'éviter la taxe en faisant appel à
des intermédiaires non-suédois pour effectuer leurs transactions. Les transactions migraient
ainsi simplement d'un marché à l'autre, et la taxe n’a alors eu aucune incidence sur la volatilité
du marché, comme cela était souhaité.

Suite à la crise financière de 2008, le débat sur la réglementation financière est revenu
sur le devant de la scène en Europe. Une telle réglementation a été considérée comme un moyen
d'éviter qu'une nouvelle crise financière ne se produise à l'avenir. Les autorités publiques ont
ainsi envisagé l'idée d'imposer une taxe sur les transactions financières dans l'esprit des
expériences précédentes proposées par Keynes (1936), Tobin (1972) et Stiglitz (1989). Et, dans
cette lignée, le 28 septembre 2011, l'Union européenne a présenté une nouvelle directive
proposant une taxe commune aux 27 États membres avec un horizon de mise en place prévu
pour 2014. Le projet mettait en avant trois grands objectifs : le premier était d'éviter la
fragmentation du marché européen et l'éventuelle concurrence qui pourrait se produire en raison
de nombreuses taxes sur les transactions financières nationales non coordonnées.
Deuxièmement, il était attendu que ce projet ou cette taxe représente une ressource financière
importante pour l'Union européenne et puisse générer des revenus conséquents pour les
gouvernements. L'objectif final - que l'on considère comme primordial - est enfin de décourager

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les transactions financières qui influencent négativement l'efficacité et le fonctionnement des
marchés financiers et de réduire les opérations spéculatives sans valeur sociale ou économique.

Les États membres de l’Union européenne ont exprimé des points de vue différents sur le sujet.
L'idée que ce prélèvement puisse constituer une ressource financière importante pour l'Union
européenne, et puisse être une composante d'une future union fiscale, n'a pas fait l'unanimité.
En l'absence d'un accord commun, onze États membres (Autriche, Belgique, Estonie, France,
Grèce, Allemagne, Italie, Luxembourg, Espagne, Slovaquie et Slovénie) ont émis le 9 octobre
2012 une demande de coopération renforcée sur ce sujet. Ces États membres ont demandé
l'autorisation d'établir un système commun de TTF dans le cadre d'une coopération renforcée,
similaire à la proposition initiale de la Commission européenne (basée sur les mêmes objectifs
et le même champ d'application). Le 22 janvier 2013, la Commission européenne a autorisé la
mise en place d'une coopération renforcée. Seuls six pays (Bulgarie, Luxembourg, Malte,
Royaume-Uni, Suède et République tchèque) ont indiqué leur volonté de s'opposer à ce projet
en s'abstenant de voter sur la coopération renforcée. Ces pays (et en particulier le Royaume-
Uni) considèrent que la mise en œuvre d'une TTF européenne aurait un impact négatif indirect
sur l'efficacité des marchés financiers. En effet, vu que cette taxe ne s’appliquerait qu’a certains
pays Européens cela avantagerait certains pays, non soumis à cet impôt, qui attireront plus
facilement les investisseurs.

La France a été l'un des premiers partisans d'une taxe sur les transactions financières et
a lancé, avec l'Allemagne, le 16 août 2011, le concept initial d'une proposition européenne de
taxe. La France n’a pas attendu la mise en place d’un consensus au sein du projet européen et a
mis en application, le 1er août 2012, une taxe nationale de 0.2 % sur les transactions financières
liées aux achats d'actions émises par des sociétés françaises dont la capitalisation boursière est
supérieure à 1 milliard d'euros. La taxe française est plus précisément composée de trois
concepts de taxation différents, à savoir (1) une taxe sur les acquisitions des actions françaises
cotées (« Securities Transaction Tax », STT), (2) une taxe sur le trading à haute fréquence, et
(3) une taxe sur les contrats d’échange sur défaut (« Credit Default Swaps », CDS).

La taxe sur les transactions financières à l’objectif clairement annoncé d’améliorer le

fonctionnement des échanges de titres sur les marchés financiers. Des études académiques se
sont ainsi penché sur la question des externalités de cette taxe pour la qualité des marchés
financiers. La littérature théorique analysant l'impact de la TTF pour le fonctionnement des
marchés financiers n’est pas abondante et ne permet pas d'atteindre un consensus sur les effets

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de la taxe. Pour cette raison, un grand nombre d'articles empiriques ont tenté d'étudier l'impact
qu'une telle taxe pourrait avoir sur la qualité des marchés financiers. À ce jour et à la lumière
des études existantes, il y a cependant encore deux points de vue opposés concernant les
externalités de la TTF, avec quelques arguments en faveur de chaque partie.

Nous avons décelé deux lacunes principales dans la littérature, que cette thèse a
l’ambition de combler. Il semble que trop peu d’études se sont penchées sur la question de
l’impact de la TTF sur l’efficience des marchés financiers, et en particulier sur la rapidité
d’intégration d’information dans les prix des titres soumis à la taxe. Il semble également
nécessaire de se pencher sur la question de la réaction des investisseurs à l’annonce
d’événements relatifs à l’implémentation d’une TTF. Dans cette thèse, nous avons ainsi étudié
l'impact de cette taxe sur le fonctionnement du marché des actions dans un premier temps en
mesurant l'effet que cette taxe pourrait avoir sur différentes mesures de qualité des marchés
financiers et en particulier sur leur efficience. Notre objectif a également été d’apprécier la
réaction des investisseurs, ou la réaction des marchés boursiers, à l'adoption de la TTF grâce à
une analyse de l’impact d’événements relatifs à une TTF sur les rentabilités des titres.

Depuis toujours, le premier obstacle auquel se confrontent les régulateurs et les autorités
publiques lorsqu'ils introduisent de nouvelles réglementations financières est la crainte d'une
réaction indéterminée des investisseurs. Comment les investisseurs vont-ils recevoir les
nouvelles procédures et réglementations ? Quelles perceptions auront-ils des externalités de ces
réglementations ? Comment leurs perceptions vont-elles influencer les prix des titres financiers
et leurs rentabilités (et donc le coût du capital des entreprises) ? La réaction des investisseurs
dépend de leurs anticipations de l’impact du dispositif réglementaire pour les marchés
financiers et les entreprises. Certains investisseurs pourraient réagir positivement à l'adoption
d'une réglementation s'ils considèrent qu’elle atteindra son objectif (comme par exemple
diminuer la spéculation, assurer la stabilité des prix...etc) et par conséquent qu’elle améliorera
le fonctionnement du marché. En conséquence, ces investisseurs pourront augmenter leur
participation sur le marché financier, puisqu’ils considéreront que cette réglementation
corrigera les défaillances du marché et qu'ils bénéficieront ainsi d'un meilleur fonctionnement
du marché financier. Leur réaction favorable pourra entraîner une augmentation de leur
demande pour les titres taxés, une augmentation du prix de ces titres, et ainsi engendrer une
réaction positive des rentabilités de ces actifs soumis à la taxe. D’un autre côté, la mise en place
d'une nouvelle réglementation pourrait réduire le nombre d'investisseurs intéressés par ce
marché, et en particulier par les titres taxés, en raison de plusieurs facteurs. Un des facteurs

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fondamentaux pourrait être le fait que l'augmentation des coûts de transaction réduira la
profitabilité nette des transactions. En conséquence, les investisseurs diminueront leur volume
de transactions et ils migreront parfois vers d'autres plateformes non taxées (comme cela s'est
produit dans l'expérience suédoise en 1984). Différents investisseurs peuvent ne pas avoir les
mêmes avantages et les mêmes coûts liés à une nouvelle réglementation.

Les études existantes qui analysent l'impact de la taxe sur les transactions financières
sur le fonctionnement des marchés financiers sont généralement plus empiriques que
théoriques. Cela est vrai notamment en ce qui concerne l'impact de la taxe sur la liquidité du
marché et les volumes de transactions. Nous rappelons dans nos travaux certaines conclusions
théoriques importantes concernant l'effet possible d'une TTF sur la qualité des marchés
financiers.

Stiglitz (1989) considère que le fait d’introduire des coûts de transaction

supplémentaires pourrait réduire la liquidité du marché. L'auteur affirme que la réduction de la
rentabilité des transactions spéculatives entraînera une diminution de la fréquence des
transactions. L'impact des nouveaux ordres arrivant sur le marché sur le prix des titres devrait
ainsi être plus grand. En conséquence, l'écart Bid-Ask spread sur le marché devrait augmenter
et la liquidité devrait diminuer.

Kupiec (1996) considère que la TTF est un outil incomplet. Selon l'auteur, une taxe sur
les transactions financières dans un modèle d'équilibre général a des effets ambigus sur la
volatilité des actifs financiers. Les investisseurs rationnels pourraient se voir moins intéressés
de réaliser des transactions, en raison de la taxe, de la même manière que cette dernière pourrait
décourager l'activité des « noise traders »31. Ainsi, la mise en place d'une telle taxe est
susceptible de conduire à une augmentation, à une diminution, ou encore à une stabilisation de
la volatilité. De plus, Kupiec (1996) montre dans le cadre de son modèle que la volatilité des
actifs les plus risqués va diminuer, et que les prix de ces actifs vont baisser.

Dans le même esprit, Song et Zhang (2005) ont également développé un modèle
d'équilibre général et ont analysé en particulier le comportement des investisseurs spéculatifs
(ou « noise traders »). Ils considèrent que les autres acteurs du marché, tels que les investisseurs
à long terme, pourraient être découragés par l'introduction d'une TTF. Ils concluent que le
volume des transactions initiées par d'autres participants tels que les investisseurs à long terme,

31
Dans ces études, ce terme désigne des investisseurs qui effectuent des transactions de nature spéculative.

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ou même les arbitrageurs, pourrait être affecté par l'introduction de la taxe (« effet de
liquidité »). Les auteurs montrent que l'effet net résultant de l'introduction d'une TTF devrait en
réalité dépendre de l'éventuelle modification de la structure de la population des acteurs des
marchés financiers (« effet de la composition des investisseurs »). Selon les auteurs, cet effet
de composition des acteurs du marché interagit avec les conséquences d'une éventuelle
réduction du volume et de la liquidité des transactions. L'effet final d'une telle taxe résulterait
de l'ampleur de ces deux effets (effet de composition et effet de liquidité) et de leur interaction.

Il existe un certain nombre d'études empiriques menées sur différents marchés et sur
différentes périodes, qui montrent des résultats convergents pour certaines variables liées à la
qualité des marchés financiers et des résultats contrastés pour d'autres variables. Cependant,
l'impact de la taxe sur le volume des transactions est une exception dans la littérature, car une
majorité d'études aboutissent au même résultat : il y a une baisse de l'activité du marché suite à
l'introduction de la TTF. Les auteurs constatent une relation négative entre les coûts de
transaction et les volumes de transactions sur les marchés d'actions. Plus les coûts de transaction
sont élevés, plus les volumes de transactions sont faibles. Selon Grundfest et Shoven (1991) et
Schwert et Seguin (1993), les investisseurs pourraient effectuer moins de transactions ou cesser
complètement leurs activités en réponse aux nouveaux coûts de transaction induits par une
nouvelle taxe sur les transactions financières. En outre, les auteurs affirment que les
investisseurs pourraient migrer vers une bourse non taxée ou substituer des actifs taxés à une
classe d'actifs tout à fait différente.

À ce jour, le débat se poursuit dans la sphère académique concernant l'impact d'une TTF
sur la volatilité des prix et l'efficience informationnelle. Les partisans d'une telle taxe, comme
Tobin (1984) et Stiglitz (1989), considèrent que les investisseurs spéculatifs dont les actions ne
sont pas basées sur l'information sont les principaux acteurs de la déstabilisation des marchés
financiers. Ils affirment qu'une taxe sur les transactions financières pourrait décourager les
investisseurs spéculatifs et donc réduire la volatilité des prix des actifs et ainsi augmenter
l'efficience informationnelle. D'autre part, les opposants à la taxe (par exemple Grundfest et
Shoven (1991) et Kupiec (1996)) affirment qu'une TTF pourrait décourager les investisseurs
fondamentaux ou les investisseurs informés plus que les « noise traders », ce qui entraînerait
une diminution de l'efficience informationnelle.

À la suite de ces discussions, nous avons également trouvé intéressant d'élargir notre
point de vue sur l'impact de la réglementation des marchés financiers et de nous concentrer sur

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un marché plus récent, développé après la crise financière de 2008, à savoir le marché des
crypto-monnaies. Notre intérêt est motivé par la crise qui s'est produite en 2018 sur le marché
des crypto-monnaies, et donc par les efforts effectués pour proposer des outils de régulation de
ce marché et prévenir une crise financière du marché des crypto-monnaies à l'avenir. Ces
éléments ont poussé les autorités publiques du monde entier (qu’il s’agisse des Etats-Unis, de
l’Europe ou encore de l’Asie) à s’intéresser à la réglementation de ce marché, et ce notamment
en 2019 considérée comme « l’année de la régulation du marché des crypto-monnaies ».

La chute massive du secteur bancaire causée par la crise financière de 2008, d'une part,
et l'insécurité des institutions financières, d'autre part, ont conduit au développement intensif
des crypto-monnaies. Étant donné que la TTF a été considérée comme un outil permettant de
remédier aux désordres causés par la crise financière, nous tentons d'examiner si la
réglementation pourrait aussi être considérée comme une solution pour remédier aux éventuels
désordres du marché des crypto-monnaies. Par conséquent, dans cette thèse, nous nous sommes
intéressés à l'impact de la réglementation sur le marché des crypto-monnaies, à la réaction des
investisseurs de ce marché à l'adoption de la réglementation ou aux annonces de réglementation,
ainsi qu’à l’impact d’événements relatifs à une réglementation sur les rentabilités des
cryptomonnaies.

Dans le cadre de cette thèse, nous proposons trois études empiriques qui offrent toutes des
éclairages complémentaires concernant la question principale suivante :

Quel est l'impact de la réglementation sur la qualité des marchés financiers et le

rendement des actifs financiers ?

Trois études ont été menées sur la base de cette question principale afin de répondre à
plusieurs sous-questions. Dans le premier chapitre nous étudions l'impact de la taxe française
sur les transactions financières sur la qualité du marché boursier français. Dans le deuxième
chapitre, nous examinons la réaction des marchés boursiers à l'adoption (effective ou probable)
de la taxe sur les transactions financières en Europe. Plus précisément, nous évaluons l'impact
d’événements relatifs à la taxe sur le rendement des actifs financiers. Dans le troisième chapitre,
nous analysons les impacts à long et court terme de la réglementation du marché des crypto-
monnaies sur les rentabilités de ces actifs. Nous tentons dans cette étude d'examiner si les

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investisseurs en crypto-monnaies perçoivent la réglementation du marché de manière
bénéfique. Dans les paragraphes ci-dessous, nous résumons les principaux points qui sont
analysés en détail dans les trois articles de cette thèse.

Motivation et choix du sujet

Le sujet des taxes sur les transactions financières et de la réglementation des marchés
financiers a toujours été un sujet attrayant et débattu par les autorités publiques, les institutions
financières et les acteurs des marchés financiers, en particulier après chaque nouvelle crise
financière telle que celle que nous avons connue en 2008. L'effet direct des réglementations sur
le comportement des investisseurs et le fonctionnement des marchés financiers rend ce sujet
important pour les chercheurs qui veulent comprendre l'impact des réglementations sur la
qualité des marchés financiers, aspect important pour les institutions de marché et leurs acteurs,
mais également pour les entreprises. Ces dernières peuvent voir leur coût du capital augmenter
ou diminuer en fonction de l’exigence supplémentaire, ou plus faible, du rendement attendu par
les investisseurs pour échanger des titres soumis à réglementation.

La difficulté liée à la réglementation des marchés financiers réside dans la nécessité de

trouver un accord entre les pays autour d’un projet unifié. En effet, chaque pays pourrait préférer
adapter la structure de la taxe ou réglementer son marché sans tenir compte des particularités
des autres pays et marchés. Colliard et Hoffmann (2017) affirment que les impacts possibles de
la mise en place d'une réglementation diffèrent d'un marché à l'autre en raison des différences
de composition du marché (l’impact d’une TTF varie selon les types d’investisseurs qui existent
sur le marché). Pour cette raison, différents pays refusent d'adopter un projet commun tel que
celui de l'Union européenne qui, jusqu'à présent, n'a pas été mise en place en raison de la lenteur
des négociations et de l'opposition de certains États membres. De plus, la littérature empirique
en finance n'a pas pu résoudre le débat concernant l'importance d'une TTF comme outil pour
rectifier les défaillances du marché. Au jour de la rédaction de cette thèse, la littérature est
encore divisée en deux groupes, le premier soutenant l'impact positif de la TTF sur les
indicateurs de qualité du marché, tandis que l'autre nuance cette relation positive. Notre objectif
dans cette thèse est de mettre en évidence certains impacts possibles de ces réglementations sur
le fonctionnement des marchés financiers et sur le comportement des rentabilités, de manière
objective sans ne soutenir a priori aucun de ces courants. De plus, nous visons dans cette thèse
à analyser la réaction de l'investisseur à une réglementation sur un nouveau marché, le marché
des crypto-monnaies. Comme mentionné précédemment, jusqu'à aujourd'hui, ce marché souffre

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d’un manque d'études analysant l'impact d'une réglementation. Cependant, même si ces études
sont peu nombreuses, les premiers papiers sur la question (Auer et Claessens, 2018 ; Koenraadt
et Leung, 2019) ont abouti à des conclusions similaires montrant qu'une réglementation aurait
un impact négatif sur les rendements des crypto-monnaies. Etant donné la forte volatilité de ce
marché, il nous a semblé important d’approfondir cette question.

L’ensemble des éléments précédents nous a motivé à choisir ce sujet et à mener trois études
différentes, et complémentaires, que nous abordons plus en détail dans la section suivante.

Contenu de la thèse

Chapitre 2

Dans le premier article de la thèse, nous nous concentrons sur l'étude de l'impact de la taxe
française sur les transactions financières, mise en place le 1er août 2012, sur différentes mesures
de la qualité du marché. En effet, il existe encore deux points de vue contradictoires sur les
effets de l'adoption de la TTF, avec des arguments en faveur de chacun. Les adeptes de cette
taxe, comme Tobin (1984), Stiglitz (1989), et Summers et Summers (1989), considèrent que
les « noise traders », dont les actions ne sont pas basées sur des informations, constituent le
facteur principal de déstabilisation des marchés financiers. Selon ces auteurs, une taxe sur les
transactions financières pourrait décourager les « noise traders » d'échanger des actifs sur le
marché et pourrait donc réduire la volatilité des prix des actifs et augmenter le degré
d’informativité des prix. En outre, Keynes (1936) considère que, comme de nombreux
investisseurs sont motivés par des spéculations à court terme et non pas par des transactions à
long terme, la mise en œuvre d'une taxe sur les transactions financières découragerait les
transactions spéculatives (qui deviendraient moins rentables) et réduirait donc la volatilité des
prix des actions.

En revanche, les opposants de la TTF affirment qu'une taxe sur les transactions
financières pourrait décourager les investisseurs informés plus que les « noise traders ». Ceci
entraînerait une plus grande volatilité sur les marchés financiers et une moindre efficacité de
l'information (voir par exemple Grundfest et Shoven, 1991, et Kupiec, 1996). Ces opposants
font, également, valoir que les transactions spéculatives ont un effet stabilisateur sur le marché
financier dans la mesure où elles augmentent la liquidité des actifs. Par conséquent, la mise en
œuvre d'une taxe sur les transactions financières réduirait d'abord le nombre d'actions échangées
sur le marché, et donc la liquidité des actifs. Black (1986) introduit les effets bénéfiques du

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"bruit" sur les marchés financiers, et il arrive à la conclusion que les transactions des « noise
traders » sont nécessaires à l'existence de marchés liquides. L'adoption d'une TTF, en diminuant
le nombre de spéculateurs sur le marché, pourrait conduire les investisseurs informés à échanger
moins ou à ne pas échanger si leurs informations ne suffisent pas à compenser les coûts de
transaction qu'ils encourent.

Colliard et Hoffmann (2017) évaluent l'impact de la TTF française qui a été mise en
place en août 2012. Les auteurs examinent l'impact de l'adoption de la TTF pour les différents
acteurs du marché. Dans le cadre de cette étude, les auteurs se sont concentrés sur les actions
françaises qui sont soumises à la taxe. Ils posent les questions suivantes : (1) la TTF française
a-t-elle provoqué une baisse du volume des échanges ainsi qu'une augmentation de l'efficience
des prix ? Ou bien (2) la TTF française a-t-elle provoqué une baisse à la fois de la liquidité, du
volume des transactions et de l’efficience des prix ? Les auteurs considèrent deux éléments qui
contribuent aux effets de cette taxe sur l'efficience du marché. Le premier élément, à savoir
l'effet de composition, consiste en la variation des participants du marché. La taxe peut en effet
avoir éloigné du marché les « noise traders » plutôt que les investisseurs informés. Dans ce cas,
la taxe peut avoir amélioré l'efficience du marché. Le deuxième élément, à savoir l'effet de
liquidité, se rapporte au fait que la taxe peut réduire les volumes de transactions au niveau
mondial et peut donc avoir un impact négatif sur la liquidité du marché et donc sur son
efficience. Les deux effets mentionnés précédemment peuvent co-exister. Colliard et Hoffmann
(2017) choisissent des variables reconnues dans la littérature telles que la volatilité des prix et
l'écart de cotation (mesurées sur la base de données intra-journalières extraites de la bourse
Euronext) et montrent que la taxe n'a pas amélioré la qualité du marché en affectant la
composition du volume des transactions. Au contraire, les résultats montrent que la taxe fait
baisser les volumes des transactions, ce qui influe directement la liquidité et la qualité du
marché financier. En particulier, les auteurs affirment que la TTF a réduit l'efficience
informationnelle. La raison principale de ces résultats est la détérioration de la qualité du
marché, car la taxe pourrait avoir un impact important sur l'activité des investisseurs
institutionnels (c'est-à-dire les activités des participants qui stabilisent les prix sur le marché).

Dans ce premier article, nous apportons un éclairage nouveau sur le lien entre la mise
en application de la taxe et l'efficience informationnelle. En raison du faible nombre d'études
au sein de la littérature qui étudient ce lien, le débat se poursuit parmi les chercheurs concernant
l'impact possible d'une TTF sur l'efficience informationnelle. Nous nous intéressons à la
capacité d’un investisseur à extraire de l’information sur les perspectives d’une entreprise en

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observant le prix de ses actions qui s’établit sur le marché financier. La taxe sur les transactions
financières va-t-elle diminuer le bruit sur le marché, accélérer le processus d’incorporation
d’information dans les prix, et donc permettre aux investisseurs d’extraire de l’information plus
rapidement en observant les prix de marché ? Ou au contraire, va-t-elle freiner les transactions
de la part des investisseurs informés et ainsi plutôt ralentir le processus d’incorporation de
l’information dans les prix ? Plus précisément, nous posons la question suivante : les
investisseurs rationnels qui observent les prix de marché afin d'en extraire de l’information sur
les perspectives futures des entreprises parviennent-ils à extraire plus rapidement de
l’information depuis la mise en place de la TTF ?

Cette étude offre différentes contributions à la littérature. La première est de répondre à

la question précédente, qui, à notre connaissance, n'a pas encore été abordée précisément dans
la littérature financière. Notre deuxième contribution est de nature méthodologique. Nous
utilisons la mesure de « Price Delay » de Hou et Moskowitz (2005) pour évaluer l'impact de la
taxe française sur la vitesse de diffusion de l'information dans les prix. À notre connaissance,
notre étude est la première qui considère cette mesure et analyse le lien entre la mise en place
de la taxe et le retard avec lequel les prix réagissent à l'information. Nous considérons
également, comme tests de robustesse, deux autres variables utilisées dans la littérature pour
évaluer l'asymétrie d'information, à savoir la mesure de la variation de rendement spécifique à
l'entreprise (FSRV) introduite par Durnev et al. (2004) et le Bid-Ask spread.

Étant donné le lien, entre la liquidité et l'efficience informationnelle, notre troisième

contribution consiste à étudier l'effet de la taxe sur les transactions financières sur la liquidité
du marché. Nous choisissons d’appréhender la liquidité par la mesure de Amihud (2002) et
nous examinons l’impact de la mise en place de la taxe en France sur la liquidité du marché.

Nous utilisons dans ce premier article empirique une méthodologie de « difference-in-

difference » (DiD). Cette méthodologie nous semble particulièrement appropriée car elle
correspond bien à la structure de la taxe française sur les transactions, qui n'a été appliquée
qu'aux sociétés françaises dont la capitalisation boursière dépasse 1 milliard d'euros. Nous
menons notre étude sur une année en utilisant des données quotidiennes : 6 mois avant la mise
en place de la taxe (de février 2012 à juillet 2012), et 6 mois après la mise en place de la taxe
(d'août 2012 à janvier 2012).

Les résultats du premier chapitre suggèrent que l’efficience du marché a été affectée
négativement par la mise en œuvre de la taxe. Nous montrons que la taxe française a retardé le

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processus d'incorporation d’information dans le prix des actions soumises à la taxe. Nous
montrons également que le FSRV des actions françaises soumises à la taxe a augmenté, ce qui
peux s’expliquer par un niveau de bruit plus fort pour ces titres taxés. Dans le même temps,
nous avons observé un impact négatif significatif de la taxe sur les mesures de la liquidité du
marché, comme le volume des transactions et le ratio d’Amihud (2002).

Nous considérons que la taxe a peut-être fait fuir les investisseurs informés, plus que les
« noise traders ». Cela pourrait s'expliquer par le fait qu'une augmentation des coûts de
transaction, induite par la nouvelle taxe sur le marché, rend les transactions plus coûteuses pour
les investisseurs et diminue la rentabilité nette des transactions. Cela peut conduire les
investisseurs informés à moins échanger sur le marché et à conserver leurs titres plus longtemps,
afin de réduire leurs coûts de transaction au fil du temps.

Chapitre 3

La problématique abordée dans le premier chapitre nous a incités à approfondir l'étude

de l'impact de la taxe sur le comportement des acteurs des marchés financiers et sur les
rendements des actions. Comment les investisseurs perçoivent-ils les externalités de la TTF ?
Comment réagissent-ils à des événements augmentant la probabilité d’implémentation d’une
taxe ? Cela va-t-il influencer leurs achats/ventes de titres soumis à la taxe et comment cela
impacte-t-il à court-terme les rentabilités des actions taxés ? Dans ce chapitre, nous nous
élargissons notre spectre d’étude au marché européen, tandis que le premier article concernait
exclusivement le marché français.

Dans ce contexte, l'objectif de ce second article est double. Dans un premier temps, nous
analysons les rendements du marché des actions face aux événements qui augmentent la
probabilité d'une adoption de la TTF en Europe. Plus précisément, nous analysons onze
événements qui peuvent être considérés par les investisseurs comme augmentant la probabilité
d'une adoption de la TTF en Europe. Nous évaluons ainsi, avec ces événements, l'impact du
processus de mise en place de la TTF sur les rentabilités des titres de huit pays européens qui
sont impliqués dans le projet de taxe sur les transactions financières de l'Union européenne.

Dans la deuxième partie de notre article, nous cherchons à savoir si des caractéristiques
particulières des entreprises expliquent l’amplitude de variation des réactions des rendements
des titres. Nous faisons l'hypothèse que certaines caractéristiques des entreprises peuvent

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atténuer ou amplifier la réaction des rendements des actions aux événements augmentant la
probabilité d'une adoption de la taxe en Europe. Par exemple, nous considérons que les
investisseurs pourraient réagir plus positivement ou moins négativement à une taxe sur les
transactions financières pour les entreprises dont les prix sont peu efficients et pour lesquels les
investisseurs peuvent voir dans la TTF une mesure qui conduira à une meilleure efficience du
marché.

Cet article contribue à la littérature existante sur le sujet de la taxe sur les transactions
financières. Des études précédentes ont examiné le lien existant entre la mise en œuvre de la
TTF et différentes mesures de la qualité du marché financier. À notre connaissance, cette étude
est considérée comme l'une des rares tentatives visant à examiner empiriquement le lien entre
la mise en application probable de la taxe et les rendements du marché des actions. En outre,
notre étude s'appuie sur des données européennes puisque nous examinons le projet européen
de TTF et que nous nous concentrons sur huit pays européens différents. Nous résumons nos
contributions dans le présent article comme suit. Notre première contribution consiste à étudier
la perception des investisseurs sur les externalités de la TTF européenne en analysant la réaction
des rendements du marché des actions aux événements qui augmentent la probabilité d'adoption
de la TTF en Europe. Notre deuxième contribution consiste à examiner si des caractéristiques
particulières des entreprises sont des facteurs déterminants de la réaction des rendements des
actifs de l'entreprise à ces événements. Notre troisième contribution est de nature
méthodologique. Notre méthodologie suit celle de Zhang (2007) et Armstrong et autres (2010)
qui étudient l'impact de l'adoption de la loi SOX et des normes IFRS sur les rendements des
marchés boursiers.

Nos résultats montrent que les événements relatifs à l’implémentation de la TTF ont eu
un effet négatif sur les rendements des titres. Les investisseurs, susceptibles de considérer que
ces événements sont de mauvaises nouvelles, et que l'adoption de la taxe aurait des externalités
négatives, ont probablement diminué leur demande pour ces titres. Il semble ainsi que les
investisseurs ont considéré que le coût de la mise en place de la taxe serait plus élevé que les
bénéfices associés.

Les résultats de la deuxième partie de notre étude montrent que la réaction était moins
négative pour les titres ayant un niveau de FSRV et de Price Delay plus importants (i.e. les titres
soumis à de plus fortes asymétries d'information). Pour les actions soumises à un risque
d'information élevé, l'événement est accueilli par les investisseurs comme une bonne nouvelle

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(positive) et la taxe est considérée comme réduisant le risque d'asymétrie d'information. À
l'inverse, l’implémentation d’une taxe est moins bien accueillie pour les actions présentant un
faible niveau d'asymétrie d'information. En outre, les résultats indiquent que les investisseurs
ont réagi plus négativement aux événements liés à l’implémentation d’une taxe pour les
entreprises dont le niveau de liquidité est plus faible.

Enfin, les résultats montrent que la réaction a été moins négative pour les entreprises
situées dans des pays où l'application de la réglementation est plus stricte. Nous pouvons
interpréter ces résultats en considérant que lorsqu’il y a une bonne application des lois, un
système judiciaire efficace et un faible niveau de corruption, les investisseurs anticipent que
l'application de toute nouvelle taxe ou réglementation réduira le risque lié au marché concerné
et corrigera les défaillances du marché.

Chapitre 4

Les chapitres 2 et 3 de la thèse se concentrent sur la TTF et la STT, qui sont des outils
résultant de la nécessité de réguler les marchés des actions, en particulier après la crise
financière de 2008. Ils étudient également l'impact de cette taxe sur la qualité des marchés
actions et les rentabilités des actions. Dans le quatrième chapitre de cette thèse, nous avons
voulu étudier l'impact de ce type de réglementation sur le fonctionnement d'un marché récent,
en cours de développement depuis la crise financière de 2008, et très volatile, à savoir le marché
des crypto-monnaies.

Le marché des crypto-monnaies est un marché complexe en raison du nombre élevé de

crypto-monnaies existant sur le marché et de leur exposition à des risques élevés compte tenu
des fluctuations de prix fréquentes et importantes (Bouri et al, 2019). En outre, l'anonymat de
la plupart des utilisateurs des crypto-monnaies joue un rôle dans cette complexité. Cette
situation a conduit à un débat permanent entre les autorités politiques et les institutions
financières. Malgré un large accord sur la nécessité de réglementer le marché des crypto-
monnaies, il existe plusieurs points de vue différents sur cette question. La source de cette
problématique est la nature juridique indéterminée des crypto-monnaies. Certains
gouvernements les considèrent comme des actifs tandis que d'autres les considèrent comme un
transfert de paiement ou de monnaie. Dans cet article, nous considérons que les crypto-
monnaies peuvent être considérées comme des actions (Alfieri et al., 2019). Dans cette optique,

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nous pourrions considérer que les marchés des crypto-monnaies se comportent de la même
manière que les marchés boursiers. Cependant, la plupart des marchés boursiers sont
réglementés afin de garantir la stabilité et la liquidité pour les investisseurs. Cela soulève la
question de la réglementation des marchés des crypto-monnaies.

Les moyens de régulation des crypto-monnaies sont variés et peuvent être divisés en
trois objectifs principaux. Selon la Banque centrale européenne (BCE), la stabilité des prix est
l'un des objectifs les plus importants. La réglementation de ce marché a également pour but de
le rendre plus liquide. Plusieurs rapports financiers et gouvernementaux (le FSB, le G20) ainsi
que des articles universitaires (Auer et Claessens (2018), par exemple) mettent en lumière le
risque de liquidité et suggèrent que plusieurs facteurs peuvent rendre le marché des crypto-
monnaies illiquide et limiter la capacité de ses participants à acheter ou à vendre des crypto-
actifs. En outre, les régulateurs cherchent à assumer un rôle très important dans la protection
des investisseurs en réduisant les activités illicites et les transactions de blanchiment d'argent.
En fin de compte, la mise en œuvre de nouvelles réglementations sur ce marché pourrait générer
des millions de dollars pour les gouvernements.

Cet article pourrait être divisé en deux questions de recherche principales : nous
analysons d'abord dans cet article la réaction à court terme des investisseurs sur le marché des
crypto-monnaies à des événements relatifs à la régulation de ce marché. Nous utilisons une
méthodologie d'étude d'événements pour examiner comment les événements réglementaires ont
affecté les rendements des titres sur le marché des crypto-monnaies.

Il existe deux scénarios de réaction des investisseurs : premièrement, l'adoption d'une

réglementation visant à améliorer et à stabiliser le fonctionnement du marché entraînerait une
réaction positive des investisseurs étant donné que cette réglementation serait perçue comme
une correction des défaillances du marché. Dans ce cas, la demande des investisseurs en crypto-
monnaies augmentera, rendant ainsi le prix du marché de ces actifs plus élevé. Le second
scénario serait que la réglementation pourrait réduire l’attrait des 'investisseurs, en particulier
ceux motivés par l'absence de réglementation et par la décentralisation du système du marché
des crypto-monnaies. Par conséquent, le fait d'ajouter des réglementations supplémentaires
diminuerait l'intérêt des investisseurs pour ce marché. Dans ce cas, la demande de crypto-
monnaies diminuera, ce qui fera baisser le prix de ces actifs.

Nous évaluons ensuite si des caractéristiques spécifiques à certaines crypto-monnaies,

et en particulier leur liquidité, pourraient expliquer que la rentabilité de certaines

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cryptomonnaies réagissent différemment d’autres cryptomonnaies à l’annonce d’événements
liés à la régulation de ce marché. Comme nous l'avons déjà mentionné, plusieurs rapports
financiers et gouvernementaux (par exemple, le FSB, le G20) mettent en évidence le risque
d’illiquidité et considèrent que la faible liquidité du marché des crypto-monnaies semble être
l'une des principales inquiétudes en matière de risque. Nous émettons l’hypothèse que les
cryptomonnaies les plus illiquides voient leur rentabilité réagir différemment que les plus
liquides face à une régulation censée améliorer la liquidité. Afin de mener cette partie de l'étude,
nous avons inclus des indicateurs de la liquidité du marché tels que le coefficient d'élasticité
des échanges (CET) et le ratio d'illiquidité d'Amihud (2002). Notre objectif principal dans cette
partie est ainsi d'analyser s'il existe une variation entre les réactions des crypto-monnaies en
raison de leurs différentes caractéristiques.

La deuxième partie de cet article cherche à savoir comment les événements

réglementaires ont affecté les performances des crypto-monnaies sur un horizon temporel plus
long. L'objectif de cette partie est d'analyser l'équilibre du marché sur une période plus longue
que les effets à court terme considérés par l'étude des événements. Pour analyser la performance
à plus long terme, nous utilisons des mesures de performance traditionnelles bien connues dans
la littérature, telles que l’alpha de Jensen (1968), Fama et French (1992) ou Carhart (1997).
Nous nous concentrons sur la performance d'un portefeuille de crypto-monnaies composé des
sept plus importantes crypto-monnaies en termes de capitalisation, Bitcoin (BTC), Ether (ETH),
Litecoin (LTC), Tether (USDT), Ripple (XRP), Dash (DASH), Monero (XMR).

Notre article contribue à la littérature existante sur la réglementation des crypto-

monnaies. Tout d'abord, nous étudions la perception des investisseurs d'une nouvelle
réglementation en analysant la réaction des rendements du marché des crypto-monnaies, à court
terme, aux événements qui augmentent la probabilité de réglementer ce marché. Ensuite, nous
analysons si des caractéristiques particulières des crypto-monnaies affectent la réaction des
rendements à ces événements. Troisièmement, contrairement aux recherches existantes sur les
crypto-monnaies, la particularité de notre étude est de prendre en considération l'impact de
plusieurs événements de régulation sur la performance d'un portefeuille de crypto-monnaies à
plus long terme. La quatrième contribution est d'ordre méthodologique puisque nous suivons
Armstrong et al. (2010) et Zhang (2007) en appliquant leur méthodologie sur le marché des
crypto-monnaies. Nous considérons également différentes variables de microstructure qui sont
largement utilisées dans la littérature existante sur les marchés des actions, mais beaucoup

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moins sur le marché des crypto-monnaies, telles que la mesure d'illiquidité d'Amihud (2002) et
la mesure de Delay de Hou et Moskowitz (2005).

Nos résultats montrent que les investisseurs réagissent négativement à l'adoption

possible de réglementations et qu'ils ont considéré ces événements comme de "mauvaises"
nouvelles. Ces résultats peuvent être justifiés par plusieurs raisons, notamment par le fait que
de nombreux investisseurs ont pu être motivés à entrer sur le marché des cryptomonnaies
principalement parce qu'il s'agit d'un marché non réglementé, et en raison de l'absence de coûts
de transaction comparés aux marchés financiers existants. Les résultats sont conformes aux
conclusions de la littérature obtenus par Auer et Claessens (2018) et Koenraadt et Leung (2019).
Ces auteurs ont en effet montré que la réglementation aurait un impact négatif sur le rendement
des crypto-monnaies. En analysant l’impact des caractéristiques des cryptomonnaies sur
l’ampleur de la réaction de leur rendement aux événements de régulation, nous avons constaté
que les investisseurs réagissaient moins négativement pour la plupart des crypto-monnaies
illiquides, ainsi que pour les crypto-monnaies soumises à une asymétrie d'information
importante. En effet, vu que cette taxe a été instaurée entre autre dans une optique de diminution
du risque de liquidité des crypto-monnaies, il semble que les investisseurs soucieux de ce risque
ont interprétés l’implémentation de ces réglementations comme étant un signal positif
favorisant la diminution du risque de liquidité.

En ce qui concerne l’analyse de performance à plus long terme d’un portefeuille de

cryptomonnaies, il s'avère que la performance de ce portefeuille a été négativement affectée par
les événements liés à la réglementation.

En ce qui concerne la contribution de notre étude globale, celle-ci offre des

recommandations et des orientations à plusieurs acteurs que l’on peut classifier en trois
groupes : le corps académique, les acteurs managériaux privés et les autorités de régulation.
1. Le corps académique : Nous contribuons à l’enrichissement de la littérature académique en
examinant et proposant de nouvelles perspectives de recherches en ce qui concerne la taxe sur
les transactions financières au niveau des marchés financiers ainsi que la réglementation relative
aux crypto-monnaies, et leur impact à différentes échelles.
2. Les acteurs managériaux privés : Cette thèse offre des éléments et des réponses aux
investisseurs et autres professionnels afin de faciliter leur compréhension sur les éventuels
impacts que pourraient avoir ces réglementations sur le fonctionnement des marchés financiers,
et leur permettre ainsi de mieux anticiper ces impacts à court et long termes.

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3. Les autorités de régulation : Nous espérons que notre thèse sera utile et bénéfique aux
autorités publiques car elle offre de nouvelles perspectives et apportent de nouvelles réponses
sur l'efficacité du processus de mise en œuvre de ce type de réglementation.
Limites et voies de recherches futures

Dans cette partie nous aborderons les principales limites de notre recherche, ainsi que les
possibles thématiques de recherches qu’il nous semblerait intéressant de développer à l’avenir.

Notre thèse présente un certain nombre de limites générales, relatives notamment à la zone
géographique considérée ou à l’échelle temporelle examinée. Travailler sur ces limites offrirait
des perspectives de recherche intéressantes. Nous abordons dans la suite de cette section des
limites spécifiques à chaque article.

La principale limite de la première étude de cette thèse réside dans le fait que celle-ci se focalise
sur le marché boursier français. Il serait intéressant, d’un point de vue académique, ainsi que
managérial, d’élargir notre perspective de recherche à d’autres pays européens qui seraient
propices à l’adoption de la taxe sur les transactions financières, ou de toute autre taxe similaire.
Un des objectifs de cette perspective serait d’analyser si la réaction du marché à
l’implémentation d’une taxe est homogène à l’échelle européenne, ou bien s’il existe des
disparités. Ces dernières pourraient être expliquées par des caractéristiques culturelles,
juridiques ou comptables. En outre, les résultats obtenus concernant l’impact de la taxe sur le
processus d’incorporation d’information dans les prix dépendent en grande partie du niveau
initial d’asymétrie d’information affectant les titres concernés. En effet, l’échantillon que nous
avons examiné est composé des plus grandes entreprises françaises en termes de capitalisation
boursière. Celles-ci sont généralement caractérisées par un faible niveau d’asymétrie
informationnelle. Si certaines taxes s’appliquent dans le futur à des titres de plus faible
capitalisation boursière, et donc avec une information moins homogènement partagée sur le
marché, il sera intéressant d’observer si les investisseurs réagissent différemment à
l’implémentation d’une taxe. Elargir le cadre géographique de notre première étude au niveau
européen permettrait ainsi de fournir des conclusions plus exhaustives concernant l’ampleur de
l’impact d’une implémentation fiscale sur les marchés financiers européens.

En ce qui concerne notre deuxième étude, une limite particulière concernant l'analyse de
l'impact de la TTF sur les marchés boursiers européens réside dans le fait que cette taxe n'est
pas encore applicable à l’échelle Européenne. Il existe cependant des exemples de taxes
similaires telles que la taxe sur les transactions financières qui est appliquée localement en

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France. Cela justifie notre choix, dans cet article, d'analyser des événements qui augmentent la
probabilité d'adoption d'une TTF, plutôt que de restreindre notre étude aux seuls événements
en rapport avec l'adoption réelle d'une TTF. Notre analyse pourrait être approfondie à l'avenir
si, et quand, un nombre significatif de pays européens mettront effectivement en œuvre une
taxe sur les transactions financières sur leurs marchés financiers.

Le fait d’élargir le cadre de notre étude en prenant en compte l’implémentation de la FTT au

niveau de plusieurs pays, chacun possédant son propre marché boursier avec ses spécificités et
ses règles qui peuvent différer d’un pays à l’autre, promet d’offrir des perspectives de
recherches intéressantes. L’effet potentiel que la réglementation peut avoir sur la qualité des
marchés financiers, et donc sur l’efficience informationnelle des prix de marché, semble
dépendre de plusieurs facteurs propres à chaque marché, tels que la composition du marché et
les caractéristiques des investisseurs, les spécificités des actifs financiers échangés ainsi que
l’organisation et la microstructure du marché considéré. Tous ces facteurs peuvent varier au
niveau géographique, c’est-à-dire d’un pays à l’autre, mais aussi dans le temps.

Enfin, le quatrième chapitre présente aussi plusieurs limites. Comme mentionné précédemment,
il n’existe pas à ce jour au niveau de la littérature un consensus quant à la nature des crypto-
monnaies. Certains pays les considèrent comme des actifs (voir même des marchandises ou des
matières premières), tandis que d’autres les considèrent plutôt comme des moyens de paiement
ou des devises. En ce qui concerne notre étude, nous avons considéré les crypto-monnaies
comme étant des titres financiers au même titre que les actions ordinaires en nous inspirant des
études de Alfieri et al. (2019), Baur et al., (2016), et Glaser et al., (2014). Nous pensons que la
littérature concernant la nature même des crypto-monnaies devrait faire l’objet de recherches
approfondies supplémentaires à l’avenir, et cela afin de fournir une base commune pour les
études ultérieures. Nous avons également été confrontés à une limite supplémentaire dans ce
quatrième chapitre, et plus précisément au niveau de la seconde partie de notre étude dans
laquelle nous avons examiné l’impact des différents évènements liés à la réglementation sur la
performance des crypto-monnaies. Comme mentionné dans ce chapitre, cet article est la
première étude empirique à étudier l'impact d'une réglementation sur le marché des crypto-
monnaies à long-terme. Cependant, nous avons dû faire face à un problème de disponibilité
restreinte de données temporelles dans la mesure où le marché des crypto-monnaies est assez
récent et où nombreuses crypto-monnaies ont un âge parfois inférieur à un an. Cela implique
que ces dernières n’ont pas toutes des historiques de données assez importants pour mener à
bien notre étude sur le long terme. Ceci nous a contraint à restreindre l’échelle temporelle de

230
notre analyse et à ne finalement considérer qu’une analyse sur le moyen terme. Nous espérons
que, dans un avenir proche, des études plus complètes pourront être réalisées en considérant
des périodes plus longues.

231
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 Abstract

After the repeated occurrences of financial crises in the near past, particularly the most recent crisis in 2008, the
discussion about the necessity of introducing a reform in financial markets received great attention. This Ph.D.
dissertation proposes three essays about the impact of financial market regulation on market quality and asset
returns. The first study aims to assess the impact of the French Securities Transaction Tax (STT), implemented in
France on August 1st, 2012, on different measures of market quality. In particular, we analyze to what extent the
implementation of the French tax affects or alters stocks’ information efficiency. We show that the French STT
has delayed the process of information incorporation into prices for taxable stocks. The second study mainly
focuses on the impact of the European Union commission’s proposal for a common tax on financial transactions
in Europe, which was announced on the 28 of September 2011, on European stock markets. We first analyze the
equity market returns’ reaction to events increasing the probability of a Financial Transaction Tax (FTT) adoption
in Europe. Our findings show that these events have negatively affected stock returns. We also provide evidence
that some firm characteristics explain cross-sectional variations in firms’ return reactions to the tax events. Finally,
our last study examines the impact of events and news increasing the probability of a regulation adoption on the
cryptocurrency market. In order to assess how cryptocurrency investors perceive the market regulation, we use an
event study methodology to analyze this impact on both short-term and longer-term periods. Our findings show
that these regulatory events have a negative impact on cryptocurrencies’ stock returns, implying that investors
have reacted negatively to the possible adoption of regulations on the crypto market. The conceptual and empirical
findings of this dissertation contribute to prior literature on financial market regulation on academic grounds, and
is also relevant for policy makers and investors.

Keywords: Regulation, Financial Transaction Tax, Information Efficiency, Asset Returns, Cryptocurrencies

Résumé

À la suite des crises financières survenues ces dernières décennies, et en particulier de la crise des Subprimes de
2008, la nécessité de réformer les marchés financiers a fait l'objet de nombreux débats académiques. Cette thèse
se compose de trois essais traitant de l’impact de régulations financières sur la qualité des marchés financiers ainsi
que sur la rentabilité des actifs financiers. La première étude a pour objectif d’analyser l’impact de
l’implémentation de la taxe française sur les transactions financières sur différents indicateurs de la qualité des
marchés. Plus précisément, nous examinons dans quelle mesure l’implémentation de cette taxe altère l’efficience
informationnelle du prix des actions. Nous montrons que cette taxe a retardé le processus d'incorporation de
l'information dans les prix des titres financiers taxés. La seconde étude se penche sur l'impact de la proposition de
la Commission européenne pour une Taxe commune sur les Transactions Financières (TTF) en Europe, dont
l’annonce eu lieu le 28 septembre 2011, sur les marchés boursiers européens. Nous analysons dans un premier
temps la réaction des marchés boursiers aux événements qui augmentent la probabilité d'une adoption de la TTF
en Europe. Notre étude empirique montre que ces événements ont eu un effet négatif sur les rendements boursiers.
Nous établissons également que certaines caractéristiques propres aux entreprises justifient des variations, en
coupe transversale, dans la réaction des rentabilités des titres aux événements de régulation. Enfin, notre dernière
étude examine l'impact des événements qui augmentent la probabilité d'adoption d'une réglementation sur le
marché des cryptomonnaies. Afin d'évaluer la perception qu'ont les traders de cryptomonnaies de la réglementation
du marché, nous utilisons une méthodologie d'étude d'événements. Nous analysons l’impact à court et à plus long
terme d’événements liés à la réglementation sur les rentabilités des cryptomonnaies. Nos résultats montrent que
ces événements réglementaires ont eu un impact négatif sur les rendements des cryptomonnaies, ce qui signifie
que les investisseurs ont réagi négativement à l'adoption potentielle d'une réglementation sur le marché des
cryptomonnaies. Les résultats conceptuels et empiriques de cette thèse contribuent à la littérature antérieure sur la
réglementation des marchés financiers, et sont également utiles pour les législateurs et les investisseurs.

Mots-clés : Réglementation, Taxe sur les transactions financières, Efficience informationnelle, Rendement des
actifs, Cryptomonnaies

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