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Evolution of security transaction tax in India

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  • Sinha, Pankaj
  • Mathur, Kritika

Abstract

Securities Transaction Taxes have received much attention over the last few years with countries and global organizations trying to control the level of speculations, especially since the Global Financial Crisis. This study examines the impact of an increase in the level of securities transaction tax on traded quantity of shares and time series behaviour of stock returns using data from two prominent national stock exchanges of India. We find that when the tax on equity transactions increases from 0.1% to 0.125%, the quantity of traded shares (volume) decreases by more than twenty five percent. Since the volatility of returns on stocks is not constant through time, conditional heteroscedasticity models are used to estimate the volatility of stock returns. The impact of tax on volatility of return on indices is insignificant.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40165.

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Date of creation: 30 Jun 2012
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Handle: RePEc:pra:mprapa:40165

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Keywords: securities transaction taxes; stock market; returns; traded shares;

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  1. Summers, L.H. & Summers, V.P., 1989. "When Financial Markets Work Too Well : A Cautious Case For A Securities Transactions Tax," Papers, Columbia - Center for Futures Markets t12, Columbia - Center for Futures Markets.
  2. John Y. Campbell & Kenneth A. Froot, 1994. "International Experiences with Securities Transaction Taxes," NBER Chapters, National Bureau of Economic Research, Inc, in: The Internationalization of Equity Markets, pages 277-308 National Bureau of Economic Research, Inc.
  3. James Tobin, 1978. "A Proposal for International Monetary Reform," Eastern Economic Journal, Eastern Economic Association, Eastern Economic Association, vol. 4(3-4), pages 153-159, Jul/Oct.
  4. Roll, R., 1989. "Price Volatility, International Market Links, And Their Implications For Regulatory Policies," Papers, Columbia - Center for Futures Markets t10, Columbia - Center for Futures Markets.
  5. Paul H. Kupiec, 1995. "A Securities Transactions Tax And Capital Market Efficiency," Contemporary Economic Policy, Western Economic Association International, Western Economic Association International, vol. 13(1), pages 101-112, 01.
  6. Umlauf, Steven R., 1993. "Transaction taxes and the behavior of the Swedish stock market," Journal of Financial Economics, Elsevier, Elsevier, vol. 33(2), pages 227-240, April.
  7. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  8. Baillie, Richard T. & Bollerslev, Tim, 1990. "A multivariate generalized ARCH approach to modeling risk premia in forward foreign exchange rate markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 9(3), pages 309-324, September.
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Cited by:
  1. Sinha, Pankaj & Mathur, Kritika, 2012. "Securities transaction tax and the stock market– an Indian experience," MPRA Paper 42743, University Library of Munich, Germany.

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