Might a Securities Transactions Tax Mitigate Excess Volatility?: Some Evidence From the Literature
AbstractInternational financial markets are said to be excessively volatile due to destabilizing speculation and excessive market volume. Transactions taxes might help. From studying the literature we conclude that there must be an optimal market liquidity, which minimizes excess volatility. There are two effects when imposing a transactions tax. Both reduce excess volatility in highly speculative markets when tax rates are small. The total tax effect then is unambiguous. However, in illiquid markets the tax might raise volatility.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Center of Finance and Econometrics, University of Konstanz in its series CoFE Discussion Paper with number 04-06.
Length: 32 pages
Date of creation: Sep 2004
Date of revision:
Find related papers by JEL classification:
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-26 (All new papers)
- NEP-FIN-2006-08-26 (Finance)
- NEP-FMK-2006-08-26 (Financial Markets)
- NEP-MST-2006-08-26 (Market Microstructure)
- NEP-PBE-2006-08-26 (Public Economics)
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.:
- Culter, D.M. & Poterba, J.M. & Summers, L.H., 1990.
"Speculative Dynamics And The Role Of Feedback Traders,"
545, Massachusetts Institute of Technology (MIT), Department of Economics.
- Cutler, David M & Poterba, James M & Summers, Lawrence H, 1990. "Speculative Dynamics and the Role of Feedback Traders," American Economic Review, American Economic Association, vol. 80(2), pages 63-68, May.
- David M. Cutler & James M. Poterba & Lawrence H. Summers, 1991. "Speculative Dynamics and the Role of Feedback Traders," NBER Working Papers 3243, National Bureau of Economic Research, Inc.
- Garfinkel, M.R. & Glazer, A. & Lee, J., 1997.
"Election Surprises and Exchange rate Uncertainty,"
97-98-15, California Irvine - School of Social Sciences.
- Lux, T. & M. Marchesi, . "Volatility Clustering in Financial Markets: A Micro-Simulation of Interacting Agents," Discussion Paper Serie B 437, University of Bonn, Germany, revised Jul 1998.
- Robert J. Shiller, 1980.
"Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?,"
NBER Working Papers
0456, National Bureau of Economic Research, Inc.
- Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-36, June.
- 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.
- Shiller, Robert J, 1995.
"Conversation, Information, and Herd Behavior,"
American Economic Review,
American Economic Association, vol. 85(2), pages 181-85, May.
- Jones, Charles M & Kaul, Gautam & Lipson, Marc L, 1994. "Transactions, Volume, and Volatility," Review of Financial Studies, Society for Financial Studies, vol. 7(4), pages 631-51.
- Allen, Helen & Taylor, Mark P, 1990. "Charts, Noise and Fundamentals in the London Foreign Exchange Market," Economic Journal, Royal Economic Society, vol. 100(400), pages 49-59, Supplemen.
- Huang, Roger D. & Cai, Jun & Wang, Xiaozu, 2002. "Information-Based Trading in the Treasury Note Interdealer Broker Market," Journal of Financial Intermediation, Elsevier, vol. 11(3), pages 269-296, July.
- Paul H. Kupiec, 1995. "A Securities Transactions Tax And Capital Market Efficiency," Contemporary Economic Policy, Western Economic Association International, vol. 13(1), pages 101-112, 01.
- J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, .
"Noise Trader Risk in Financial Markets,"
J. Bradford De Long's Working Papers
_124, University of California at Berkeley, Economics Department.
- Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March.
- Barry Eichengreen, James Tobin, and Charles Wyplosz., 1994.
"Two Cases for Sand in the Wheels of International Finance,"
Center for International and Development Economics Research (CIDER) Working Papers
C94-045, University of California at Berkeley.
- Eichengreen, Barry & Tobin, James & Wyplosz, Charles, 1995. "Two Cases for Sand in the Wheels of International Finance," Economic Journal, Royal Economic Society, vol. 105(428), pages 162-72, January.
- Peter L. Bernstein, 1999. "Why The Efficient Market Offers Hope To Active Management," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(2), pages 129-136.
- Cochrane, John H., 1991.
"Volatility tests and efficient markets : A review essay,"
Journal of Monetary Economics,
Elsevier, vol. 27(3), pages 463-485, June.
- John H. Cochrane, 1992. "Volatility Tests and Efficient Markets: A Review Essay," NBER Working Papers 3591, National Bureau of Economic Research, Inc.
- Bollerslev, Tim, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics,
Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Pagano, Marco, 1986.
"Endogenous Market Thinness and Stock Price Volatility,"
CEPR Discussion Papers
146, C.E.P.R. Discussion Papers.
- Pagano, Marco, 1989. "Endogenous Market Thinness and Stock Price Volatility," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 269-87, April.
- Richard K. Lyons, 2006. "The Microstructure Approach to Exchange Rates," MIT Press Books, The MIT Press, edition 1, volume 1, number 026262205x, January.
- John Y. Campbell & Kenneth A. Froot, 1993.
"International Experiences with Securities Transaction Taxes,"
NBER Working Papers
4587, National Bureau of Economic Research, Inc.
- John Y. Campbell & Kenneth A. Froot, 1994. "International Experiences with Securities Transaction Taxes," NBER Chapters, in: The Internationalization of Equity Markets, pages 277-308 National Bureau of Economic Research, Inc.
- James Tobin, 1978.
"A Proposal for International Monetary Reform,"
Cowles Foundation Discussion Papers
506, Cowles Foundation for Research in Economics, Yale University.
- Jones, Charles M & Seguin, Paul J, 1997. "Transaction Costs and Price Volatility: Evidence from Commission Deregulation," American Economic Review, American Economic Association, vol. 87(4), pages 728-37, September.
- Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
- Stiglitz, J.E., 1989. "Using Tax Policy To Curb Speculative Short-Term Trading," Papers t2, Columbia - Center for Futures Markets.
- Frank Westerhoff, 2003.
"Heterogeneous traders and the Tobin tax,"
Journal of Evolutionary Economics,
Springer, vol. 13(1), pages 53-70, 02.
- James Tobin, 1989. "Policies for Prosperity: Essays in a Keynesian Mode," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262700360, January.
- Thomas Palley, 1999. "Speculation and Tobin taxes: Why sand in the wheels can increase economic efficiency," Journal of Economics, Springer, vol. 69(2), pages 113-126, June.
- Lyons, Richard K., 1997. "A simultaneous trade model of the foreign exchange hot potato," Journal of International Economics, Elsevier, vol. 42(3-4), pages 275-298, May.
- Shiller, Robert J, 1979. "The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1190-1219, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ingmar Nolte) The email address of this maintainer does not seem to be valid anymore. Please ask Ingmar Nolte to update the entry or send us the correct address.
If references are entirely missing, you can add them using this form.