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Table 3 The impact of the introduction of different tax regimes on stock market efficiency, volatility and liquidity

From: Non-Value-Added Tax to improve market fairness and quality

Regime 1

Regime 2

Regime 3

Abs. return

Abs. return

Abs. return

Tax

(s.e.)

adj. \(R^2\)

p value

Tax

(s.e.)

adj. \(R^2\)

p value

Tax

(s.e.)

adj. \(R^2\)

p value

4.991e−05

6.002e−06

0.0007072

\(<2e-16***\)

− 9.077e−05

6.046e−06

0.002319

\(<2e-16***\)

− 9.101e−05

6.095e−06

0.002315

\(<2e-16***\)

Sqrt return

Sqrt return

Sqrt return

Tax

(s.e.)

adj. \(R^2\)

p value

Tax

(s.e.)

adj. \(R^2\)

p value

Tax

(s.e.)

adj. \(R^2\)

p value

− 3.369e−07

6.829e−08

0.0002423

\(8.07e-07***\)

− 5.997e−07

6.868e−08

0.0007787

\(<2e-16***\)

− 5.988e−07

6.893e−08

0.0007779

\(<2e-16***\)

\(\sigma _k\)

\(\sigma _k\)

\(\sigma _k\)

Tax

(s.e.)

adj. \(R^2\)

p value

Tax

(s.e.)

adj. \(R^2\)

p value

Tax

(s.e.)

adj. \(R^2\)

p value

− 4.829e−05

7.341e−06

0.0004386

\(4.78e-11***\)

− 8.083e−05

7.374e−06

0.001233

\(<2e-16***\)

− 8.258e−05

7.442e−06

0.001275

\(<2e-16***\)

Deviation from fundamental, %

Deviation from fundamental, %

Deviation from fundamental, %

Tax

(s.e.)

adj. \(R^2\)

p value

Tax

(s.e.)

adj. \(R^2\)

p value

Tax

(s.e.)

adj. \(R^2\)

p value

0.073625

0.013028

0.0003209

\(1.6e-08***\)

0.09409

0.01228

0.0005973

\(1.83e-14***\)

0.07187

0.01478

0.0002366

\(1.16e-06***\)

Volume

Volume

Volume

Tax

(s.e.)

adj. \(R^2\)

p value

Tax

(s.e.)

adj. \(R^2\)

p value

Tax

(s.e.)

adj. \(R^2\)

p value

− 387.7

124.9

0.004303

\(0.00193**\)

− 695.3

120.2

0.01597

\(8.46e-09***\)

− 826.94

135.46

0.01782

\(1.23e-09***\)

  1. Difference in differences analysis. (s.e.) = standard error of test. \(R_t= log(P_t/P_{t-1})\) is the log return. Sqrt.return and Abs.return are respectively the squared and absolute returns. \(\sigma _k\) is the standard deviation computed based on 20 returns with a moving window of \(k=20\). The deviation from fundamentals represents the absolute difference between the fixed price and the fundamental value at the moment t. Volume represents the daily trading volume. Column Tax represents the effect of the NVAT on metrics of market quality. (s.e.), adj. \(R^2\) and p value show respectively the standard error, the adjusted \(R^2\) and the p-value of the test
  2. Signif. codes: 0 ‘***’, 0.001 ‘**’, 0.01 ‘*’, 0.05 ‘.’, 0.1 ‘ ’, 1
  3. This table shows that the implementation of NVAT contributes to decreasing the absolute return, the squared return and the standard deviation but it negatively affects market liquidity since it reduces the trading volume. Yet, the decreased trading volume should not be perceived as a simple dry-up of liquidity. The countervailing side is that a reduction in volume of exchange means less frequent order submissions, updates, and cancellation of orders that may lead to significant market fluctuations. NVAT has a direct effect on speculators, dissuading them from entering into unproductive trades. The graduated NVAT tax rate tables provide the tools for marketplace supervision to manage balancing tradeoffs between liquidity and frenzy. In this manner, NVAT removes some part of speculative non-productive volume