Assessing the impact of an EU financial transactions tax on asset volatility: An event study

Under the context of EMU debt and financial crisis, we assess the impact of EMU's announcement of a Financial Transactions tax (FTT) on bond and equity volatilities for seven countries, namely Germany, France (core EMU), Greece, Italy, Ireland, Portugal and Spain (periphery EMU). In the absence of historical data on volume and volatility of transactions of such a tax, we utilize the event study methodology. The selected event date considering the FTT announcement was found significant for core EMU's equity portfolio and periphery EMU's bond portfolio. Moreover, under GARCH models, we found that the announcement effect of FTT increases the volatility of both core EMU's equity portfolio as well as periphery EMU's bond portfolio.