Wed, Jul 8, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

EDHEC-Risk Institute warns European Commission of consequences of Tobin Tax

Friday, February 01, 2013
Opalesque Industry Update - In an open letter to European Commission President, José Manuel Barroso on January 30, 2013, Professor Noël Amenc, Director of EDHEC-Risk Institute and Professor of Finance at EDHEC Business School, has reiterated EDHEC-Risk Institute’s opposition to a ‘Tobin’ or financial transactions tax (FTT). Research findings from EDHEC-Risk Institute and other academic institutions show that the theoretical arguments in support of the FTT as a measure to reduce volatility are, at best, mixed; the empirical evidence, on the other hand, indicates that a FTT has either no effect on volatility or it actually increases volatility; and, introducing an FTT faces serious implementation challenges.

In the light of the ongoing discussions on broad implementation of an FTT within the eurozone, EDHEC-Risk Institute points out that reducing the convenience of transactions by increasing taxes:

  • Makes optimal management of long-term investments, which should be dynamic and not static, more costly. This has been shown from more than thirty years of research results, notably those of Robert Merton, Nobel Prize in Economics laureate in 1997, and in the work on the optimal management of risk budgets that EDHEC-Risk Institute has been conducting in recent years as part of its research programme on asset-liability management.
  • Increases the liquidity premium on stocks.
  • Makes markets less efficient and restricts price discovery phenomena.
Ultimately, all these elements would lead to an increase in the risk premium required by investors, including long-term investors, and to a rise in the cost of capital, with a consequential negative impact on economic growth in Europe.

Before seeking to impose a tax on European stocks, EDHEC-Risk Institute recommends that the Commission draw lessons from the recent failed introduction of the FTT in France. The taxed French stocks have recorded an average fall of 15% in volume compared to stocks that were not concerned. “Substitution effects” have occurred between French and foreign stocks from the same sector. Some investors have decided to modify their equity portfolio by underweighting French stocks in favour of non-taxed European firms. This substitution effect will not fail to have consequences on the price of French firms and their capacity to raise capital in order to invest and create employment.

The frequently-mentioned argument that substitution effects would not occur in the case of a tax that is expanded to a wider geographical zone and, as proposed by the Commission, based not only on the location of the transaction or the headquarters of the financial intermediary but also on the primary listing or the nationality of the company, seems to EDHEC-Risk Institute to be irrelevant. It would simply lead to European stocks being disadvantaged in comparison with other geographical regions.

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

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

Werbsite: www.edhec-risk.com

fg

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. Opalesque Exclusive: New systematic strategy managed alongside research firm outperforms S&P500[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: An emerging CTA manager explains how he runs his strategy, which is based on an index produced by a research firm. Peter Turk is head of

  2. Opalesque Exclusive: New systematic strategy embraces machine learning[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: The founder of a New York-based systematic trading firm, which offers a hybrid between alpha strategies and alternative feta at lower fees, describes his approa

  3. Larry Robbins' hedge fund Glenview buys 1m Tenet Healthcare shares[more]

    Komfie Manalo, Opalesque Asia: Glenview Capital Management said it bought an additional 979,482 shares at Tenet Healthcare Corp valued at $53.80 million, raising its stakes in the healthcare services company to 15.16%, reported

  4. Legal - Grayson’s hedge funds under scrutiny for possible ethics violations, Court rejects hedge fund’s motion to block merger of Samsung affiliates[more]

    Grayson’s hedge funds under scrutiny for possible ethics violations From Freebeacon.com: Rep. Alan Grayson is finding himself in hot water over managing hedge funds that bear his name, actions that are in possible violation of House ethics rules. Sitting members of Congress are prohibite

  5. Hedge funds decline in June as stocks tumble on Greek woes[more]

    From Bloomberg.com: Hedge funds posted losses across strategies last month as uncertainty over whether Greece will remain in the euro sent global stock markets tumbling. Winton Capital Management declined about 3.1 percent in June in its $12.1 billion Winton Futures Fund, leaving it down 1.9 percent

 

banner