Portfolio Choice and Transactions Taxes
AbstractIn a simple portfolio choice model of two assets a foreign exchange transactions tax is implemented. We show that the graph in the mu-sigma- range is still a parabola and delineate its characteristics for altering tax rates. We presumed a risk avers investor seeking to minimize investment risks by international diversification of two uncorrelated assets. The main finding is that setting up a portfolio under the new tax condition leads to a higher transaction volume on international fi- nancial markets. In contrast, the transactions tax has got a stabilizing character when adjusting the portfolio to increased foreign investment risks.
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Bibliographic InfoPaper provided by Center of Finance and Econometrics, University of Konstanz in its series CoFE Discussion Paper with number 03-09.
Length: 25 pages
Date of creation: Aug 2003
Date of revision:
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