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Stock price volatility, transactions costs and securities transactions taxes

Author

Listed:
  • Allen B. Atkins

    (University of Arizona, AZ, USA)

  • Edward A. Dyl

    (University of Arizona, AZ, USA)

Abstract

Securities Transactions Taxes (STTs) are intended to reduce or eliminate excessive volatility in stock prices caused by short-term speculative trading. To examine the implicit assumption that stock price volatility is caused by short-term trading, we investigate the relationship between volatility and bid-ask spreads, since short-term speculative traders and other investors with short time horizons will prefer stocks with low transactions costs. Our finding, that volatility is actually associated with high transactions costs, is inconsistent with the 'speculator' story. Our study suggests that the effect of an STT may be to impede the adjustment of stock prices to new information, rather than to curb 'excessive short-term speculation'. © 1997 John Wiley & Sons, Ltd.

Suggested Citation

  • Allen B. Atkins & Edward A. Dyl, 1997. "Stock price volatility, transactions costs and securities transactions taxes," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 18(7-8), pages 709-718.
    • Handle: RePEc:wly:mgtdec:v:18:y:1997:i:7-8:p:709-718
    DOI: 10.1002/(SICI)1099-1468(199711/12)18:7/8<709::AID-MDE860>3.0.CO;2-0
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    Cited by:

    1. Neil McCulloch & Grazia Pacillo, 2010. "The Tobin Tax A Review of the Evidence," Working Paper Series 1611, Department of Economics, University of Sussex Business School.
    2. Deng, Yongheng & Liu, Xin & Wei, Shang-Jin, 2018. "One fundamental and two taxes: When does a Tobin tax reduce financial price volatility?," Journal of Financial Economics, Elsevier, vol. 130(3), pages 663-692.

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