Tue, Dec 6, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

EDHEC-Risk Institute warns the European Commission against Tobin Tax on financial transactions

Wednesday, July 13, 2011

Raman Uppal
Opalesque Industry Update - In an open letter dated July 12, 2011 addressed to the European Internal Market and Services Commissioner, Michel Barnier, EDHEC-Risk Institute has warned of the inadvisability of imposing a Tobin tax on financial transactions in order to fund the future European budget.

On the basis of a position paper* by Raman Uppal, Professor of Finance at EDHEC Business School, EDHEC-Risk Institutes recommendations are structured around the theoretical evidence on transaction taxes, the empirical evidence on transaction taxes, and implementation challenges:

 The findings of theoretical models are mixed about the effectiveness of the Tobin tax to reduce volatility and improve welfare. The Tobin tax will obviously lead to a reduction in the trading of securities on which the tax is imposed. But, a reduction in the trading of financial securities also means that it is now more difficult to smooth consumption over time and across states of nature. The Tobin tax reduces speculative activity in financial markets; but, this tax also drives away investors who provide liquidity, stabilise prices, and help in the price discovery process. Thus, introducing a Tobin tax has both advantages and disadvantages, and the net effect on volatility is likely to be small.

 There is a substantial body of empirical work studying the effect of a transactions tax on volatility of the price of financial securities. Most of these find that a transaction cost either fails to reduce return volatility, or leads to an increase in volatility. Moreover, the imposition of a transaction tax leads to a reduction in the demand for that financial security, and thus, a drop in its price.

 Finally, imposing a tax on financial transactions presents its own challenges. For example, can regulators really distinguish between transactions related to fundamental business and those that are purely speculative? Can regulators determine the appropriate rate for the Tobin tax that would reduce the activities of investors who are not fully rational but not drive away trade by rational investors? And, from the point of view of speculators, unless every country in the world introduced the Tobin tax, it would be easy to circumvent the tax by routing transactions through countries that do not impose the tax.

(press release)


A copy of the open letter can be found here: Source

* A copy of the EDHEC-Risk Institute position paper can be found here: Source

EDHEC-Risk Institute is part of EDHEC Business School, one of Europes leading business schools and a member of the select group of academic institutions worldwide to have earned the triple crown of international accreditations (AACSB, EQUIS, Association of MBAs). www.edhec-risk.com

Bg

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. M&A - AllianzGI to acquire Sound Harbor Partners, SS&C completes acquisition of Wells Fargo's Global Fund Services business[more]

    AllianzGI to acquire Sound Harbor Partners Allianz Global Investors (AllianzGI), an active investment manager, announced that Sound Harbor Partners, a US private credit manager led by Michael Zupon and Dean Criares, have agreed to join its fast-growing Private Debt Platform. Under the te

  2. Hunt for yield pushes more investors into riskier assets[more]

    From FT.com: Pension funds and insurance companies have increasingly embraced riskier assets in their hunt for higher returns over the past five years. Alternative assets such as property, infrastructure, private equity and hedge funds have been bought up by institutional investors in a world where

  3. People - Nectar Financial hires senior investment team, Texas A&M replaces retiring foundation investment chief, Ex-Cadwalader partner Woolery makes another sudden exit, How to become a Python coder at a top hedge fund, by the co-CTO of Man AHL[more]

    Nectar Financial hires senior investment team Nectar Financial AG, a Swiss financial technology company for wealth and asset management, has announced that it has hired two key senior leaders to spearhead its digital asset management efforts. The company also announced that it has entere

  4. Activist News - Cognizant has introductory discussion with activist investor Elliott; to review letter, Starboard Value makes huge investment in Hewlett Packard, Hedge fund calls for removal of First NBC Bank CEO[more]

    Cognizant has introductory discussion with activist investor Elliott; to review letter From Indiatimes.com: Cognizant said it had an introductory discussion with Elliott Management after receiving the activist hedge fund's letter asking for a board shakeup, a buyback, a dividend and chan

  5. Opalesque Exclusive: Ireland relaxes treatment of direct lending funds[more]

    Bailey McCann, Opalesque New York: The Irish Central Bank has relaxed its treatment of direct lending funds, according to a recently released