Tue, Mar 19, 2024
A A A
Welcome Guest
Free Trial RSS pod
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   |   
Previous Opalesque Exclusives                                  
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. KKR raises $6.4bn for the largest pan-Asia infrastructure fund[more]

    Laxman Pai, Opalesque Asia: The New York-based global investment firm KKR has raised a record $6.4bn for its second Asia-focused infrastructure fund, underlining investors' continued appetite for private markets. According to a media release from the alternative assets manager, the figure top

  2. Bucking the trend, top hedge fund makes plans for a second SPAC[more]

    From Institutional Investor: SPACs aren't dead. At least not to the folks at Cormorant Asset Management. The life sciences firm, whose hedge fund topped its peers in 2023, is confident it will match the success of its first blank-check company. Last week, the life sciences and biopharma speciali

  3. Benefit Street Partners closes fifth fund on $4.7 billion[more]

    Bailey McCann, Opalesque New York: Benefit Street Partners has closed its fifth flagship direct lending vehicle, BSP Debt Fund V, with $4.7 billion of investable capital across the strategy. Benefit Street invests primarily in privately originated, floating rate, senior secured loans. The fun

  4. 4 hedge fund themes that are working in 2024[more]

    From The Street: A poor earnings report from Tesla (TSLA) has not hurt the indexes on Thursday. The decline in Tesla stock, which is losing its position in the Magnificent Seven pantheon, is more than offset by strong earnings from IBM (IBM) and ServiceNow (NOW) . In addition, the much higher-t

  5. Opalesque Exclusive: A global macro fund eyes opportunities in bonds[more]

    Bailey McCann, Opalesque New York for New Managers: Munich-based ThirdYear Capital rebounded in 2023, following a tough year for global macro. The firm's flagship ART Global Macro strategy finished the year up 1