Impact of Securities Transactions Tax on Stock Markets and Market Participants: Evidence From India
By Deepak Agrawal, K.R Subramanyam, Prasanna Tantri, Ramabhadran Thirumalai
Citation
Agrawal, Deepak., Subramanyam, K.R., Tantri, Prasanna., Thirumalai, Ramabhadran. (2019). Impact of Securities Transactions Tax on Stock Markets and Market Participants: Evidence From India .
Copyright
2019
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Abstract
We examine the impact of a securities transaction tax imposed on Indian stocks and derivative securities on trading volume of different category of investors. We use daily stock-trader category level proprietary data on trading volumes provided to us by the largest stock exchange in India- National Stock Exchange. We ifnd that a transaction tax leads to a significant reduction in the total traded volume. Interestingly, the proprietary trading volume by institutional investors falls more than both retail and non proprietary institutional trading volume, leading to an overall decrease in
institutional trading. Consequently, price efficiency as well as the liquidity of the affected stocks decline significantly.
institutional trading. Consequently, price efficiency as well as the liquidity of the affected stocks decline significantly.
Ramabhadran S. Thirumalai is an Associate Professor of Finance (Practice) at the Indian School of Business (ISB). He is currently working on the impact of various regulatory changes on securities market pricing, efficiency, and liquidity. His research interests also include the trading behaviour of various types of market participants, with a particular focus on proprietary trading.
He teaches courses on Derivatives and Security Markets in the PGP programme, as well as, introductory finance courses in several programmes at ISB.
Ramabhadran Thirumalai