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

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Author Info
Victoria Saporta
Kamhon Kan

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

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Handle: RePEc:boe:boeewp:71

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Werner, Ingrid M & Kleidon, Allan W, 1996. "U.K. and U.S. Trading of British Cross-Listed Stocks: An Intraday Analysis of Market Integration," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 9(2), pages 619-64. [Downloadable!] (restricted)
  2. Paul H. Kupiec, 1989. "Initial margin requirements and stock returns volatility: another look," Finance and Economics Discussion Series 53, Board of Governors of the Federal Reserve System (U.S.).
  3. Paul Kupiec, 1991. "Noise traders, excess volatility, and securities transaction tax," Finance and Economics Discussion Series 166, Board of Governors of the Federal Reserve System (U.S.).
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  5. Leonardo Bartolini & Gordon M. Bodnar, 1995. "Are Exchange Rates Excessively Volatile? And What Does "Excessively Volatile" Mean, Anyway?," IMF Working Papers 95/85, International Monetary Fund.
    Other versions:
  6. Scholes, Myron & Williams, Joseph, 1977. "Estimating betas from nonsynchronous data," Journal of Financial Economics, Elsevier, vol. 5(3), pages 309-327, December. [Downloadable!] (restricted)
  7. Ian Domowitz & Jack Glen & Ananth Madhavan, 1998. "International Cross-Listing and Order Flow Migration: Evidence from an Emerging Market," Journal of Finance, American Finance Association, vol. 53(6), pages 2001-2027, December. [Downloadable!] (restricted)
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  12. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59. [Downloadable!] (restricted)
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  14. James Tobin, 2003. "A Proposal for Monetary Reform," Eastern Economic Journal, Eastern Economic Association, vol. 29(4), pages 519-526, Fall. [Downloadable!]
  15. Summers, L.H. & Summers, V.P., 1989. "When Financial Markets Work Too Well : A Cautious Case For A Securities Transactions Tax," Papers t12, Columbia - Center for Futures Markets.
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  18. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April. [Downloadable!] (restricted)
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  20. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December. [Downloadable!] (restricted)
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  21. J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1989. "Positive Feedback Investment Strategies and Destabilizing Rational Speculation," NBER Working Papers 2880, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  22. Jeffrey A. Frankel, 1994. "The Internationalization of Equity Markets," NBER Working Papers 4590, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Karl Friedrich Habermeier & Andrei Kirilenko, . "Securities Transaction Taxes and Financial Markets," IMF Working Papers 01/51, International Monetary Fund. [Downloadable!]
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