The Effects of Stamp Duty on the Hong Kong Exchange Stocks

Abstract

This paper investigates the causal effects of Hong Kong’s stock stamp duty on the volatility and trading volume of stocks listed on the Hong Kong Exchange (HKEX). Specifically, the paper employs a stacked difference-in-differences framework using dual-listed Hong Kong–Shanghai twin shares as treatment and control, centered on the two stamp duty changes that Hong Kong implemented in the last decade. To better isolate the effect of the actual tax change from the policy shock, the analysis excludes the anticipatory period between the first public announcement and the effective date. Since parallel pretrends do not hold for the full universe of twin shares, the paper further restricts the analysis to pairs that exhibit at least moderate co-movement prior to treatment within the local event window. The results show that, in the short run, higher stamp duty is associated with a statistically significant decline in the relative volatility of Hong Kong shares, while no evidence is found for its impacts on volume traded.