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Effects of Tobin taxes in minority game markets

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  • Bianconi, Ginestra
  • Galla, Tobias
  • Marsili, Matteo
  • Pin, Paolo

Abstract

We show that the introduction of Tobin taxes in agent-based models of currency markets can lead to a reduction of both speculative trading and the magnitude of exchange rate fluctuations at intermediate tax rates. In this regime revenues obtained from speculators are maximal for the institutions acting as market makers. We here focus on minority game models of markets, which are accessible by exact techniques from statistical mechanics. Results are supported by computer simulations. Our findings suggest that at finite systems sizes the effect is most pronounced in a critical region around the phase transition of the infinite system, but much weaker if the market is operating far from criticality and does not exhibit anomalous fluctuations.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 70 (2009)
Issue (Month): 1-2 (May)
Pages: 231-240

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Handle: RePEc:eee:jeborg:v:70:y:2009:i:1-2:p:231-240

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Tobin tax Minority games;

References

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  1. Marsili, Matteo, 2001. "Market mechanism and expectations in minority and majority games," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 299(1), pages 93-103.
  2. Carl Chiarella & Tony He & Cars H. Hommes, 2005. "A Dynamic Analysis of Moving Average Rules," Tinbergen Institute Discussion Papers 05-057/1, Tinbergen Institute.
  3. Johnson, Neil F. & Jefferies, Paul & Hui, Pak Ming, 2003. "Financial Market Complexity," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198526650, October.
  4. Day, R. & Huang, W., 1988. "Bulls, Bears And Market Sheep," Papers, Southern California - Department of Economics m8822, Southern California - Department of Economics.
  5. De Grauwe, Paul & Grimaldi, Marianna, 2006. "Exchange rate puzzles: A tale of switching attractors," European Economic Review, Elsevier, vol. 50(1), pages 1-33, January.
  6. Frank Westerhoff, 2002. "Heterogeneous Traders and the Tobin Tax," Computing in Economics and Finance 2002, Society for Computational Economics 51, Society for Computational Economics.
  7. Hommes, Cars H., 2006. "Heterogeneous Agent Models in Economics and Finance," Handbook of Computational Economics, Elsevier, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 23, pages 1109-1186 Elsevier.
  8. G. Ehrenstein & F. Westerhoff & D. Stauffer, 2003. "Tobin tax and market depth," Papers cond-mat/0311581, arXiv.org.
  9. Eric van Wincoop & Philippe Bacchetta, 2000. "Does Exchange-Rate Stability Increase Trade and Welfare?," American Economic Review, American Economic Association, American Economic Association, vol. 90(5), pages 1093-1109, December.
  10. Jeffrey A. Frankel and Andrew K. Rose., 1995. "A Survey of Empirical Research on Nominal Exchange Rates," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C95-051, University of California at Berkeley.
  11. R. Cont, 2001. "Empirical properties of asset returns: stylized facts and statistical issues," Quantitative Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 1(2), pages 223-236.
  12. Carol L. Osler, 2006. "Macro lessons from microstructure," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(1), pages 55-80.
  13. Gudrun Ehrenstein, 2002. "Cont-Bouchaud percolation model including Tobin tax," Papers cond-mat/0205320, arXiv.org.
  14. Cont, Rama & Bouchaud, Jean-Philipe, 2000. "Herd Behavior And Aggregate Fluctuations In Financial Markets," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 4(02), pages 170-196, June.
  15. Beja, Avraham & Goldman, M Barry, 1980. " On the Dynamic Behavior of Prices in Disequilibrium," Journal of Finance, American Finance Association, American Finance Association, vol. 35(2), pages 235-48, May.
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Citations

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Cited by:
  1. Francis Bismans & Olivier Damette, 2012. "La taxe Tobin : une synthèse des travaux basés sur la théorie des jeux et l’économétrie," Working Papers of BETA 2012-09, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  2. F. Caccioli & M. Marsili & P. Vivo, 2009. "Eroding market stability by proliferation of financial instruments," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, Springer, vol. 71(4), pages 467-479, October.
  3. Hynek Lavicka & Tomas Lichard & Jan Novotny, 2014. "Sand in the Wheels or Wheels in the Sand? Tobin Taxes and Market Crashes," CERGE-EI Working Papers wp511, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  4. Olivier Damette, 2013. "Mixture distribution hypothesis and the impact of a Tobin tax on exhange rate volatility : a reassessment," Working Papers of BETA 2013-07, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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