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The impact of the securities transaction taxes on the Chinese stock market

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  • Su, Yongyang

Abstract

This paper analyzes the impact of changes in the securities transaction tax (STT) rate on the local A-shares market in China. We find that, on average, a 22-base-point- increase in the STT rate is associated with about a 28% drop in trading volume, while a 17-base-point- reduction in the STT rate is associated with about a 89% increase in trading volume in the Chinese A-shares market. Both the increases and reductions in the STT rate result in a significant increase in the market return volatility. Besides, the increases in the STT rate have mixed effects on market efficiency, either improving or curbing it. The reductions usually either make the market less efficient or have not effect on it. The empirical results together show that levying the STT on trading is not an effective tool to regulate stock market, at least in this emerging market.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22695.

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Date of creation: 2010
Date of revision: 13 May 2010
Handle: RePEc:pra:mprapa:22695

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Keywords: Securities transaction taxes; stock market; volatility; trading volume;

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  1. Dong Li & Shao-King Lin & Chulin Li, 1997. "The impact of settlement time on the volatility of stock markets," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 7(6), pages 689-694.
  2. Andrew Lo & Harry Mamaysky & Jiang Wang, 2001. "Asset Prices and Trading Volume Under Fixed Transactions Costs," Yale School of Management Working Papers, Yale School of Management ysm188, Yale School of Management, revised 01 Sep 2009.
  3. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  4. Ian Domowitz & Jack Glen & Ananth Madhavan, 2000. "Liquidity, Volatility, and Equity Trading Costs Across Countries and Over Time," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 322, William Davidson Institute at the University of Michigan.
  5. Stiglitz, J.E., 1989. "Using Tax Policy To Curb Speculative Short-Term Trading," Papers, Columbia - Center for Futures Markets t2, Columbia - Center for Futures Markets.
  6. Hu, Shing-yang, 1998. "The effects of the stock transaction tax on the stock market - Experiences from Asian markets," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 6(3-4), pages 347-364, August.
  7. Bailey, Warren & Chung, Y. Peter & Kang, Jun-koo, 1999. "Foreign Ownership Restrictions and Equity Price Premiums: What Drives the Demand for Cross-Border Investments?," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 34(04), pages 489-511, December.
  8. Marc Schaberg & Dean Baker & Robert Pollin, 2002. "Securities Transaction Taxes for U.S. Financial Markets," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp20, Political Economy Research Institute, University of Massachusetts at Amherst.
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