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The effects of Stamp Duty on the Level and Volatility of Equity Prices

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  • Victoria Saporta
  • Kamhon Kan

Abstract

This paper investigates the effects of stamp duty - the UK securities transaction tax - on the level and volatility of equity prices. The authors examine the response of the equity market to announcements of changes in stamp duty rates and compare the prices of two assets which are similar in all respects apart from their treatment for stamp duty purposes: American Depositary Receipts (ADRs) and their London Stock Exchange-traded stocks. The findings are consistent with the hypothesis that stamp duty is capitalised in prices. Using univariate GARCH models, the authors find that stamp duty has no effect on volatility, contradicting the key hypothesis put forward by proponents of transaction taxes.

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File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/1997/wp71.pdf
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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 71.

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Date of creation: Oct 1997
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Handle: RePEc:boe:boeewp:71

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. "Help for first-time buyers"?
    by chris dillow in Stumbling and Mumbling on 2010-04-13 13:09:12
  2. Against a transactions tax
    by chris dillow in Stumbling and Mumbling on 2009-11-08 12:54:57
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Cited by:
  1. Zsolt Darvas & Jakob von Weizsäcker, 2010. "Financial-Transaction Tax: Small Is Beautiful," Policy Contributions, Bruegel 379, Bruegel.
  2. Karl Friedrich Habermeier & Andrei Kirilenko, 2001. "Securities Transaction Taxes and Financial Markets," IMF Working Papers 01/51, International Monetary Fund.

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