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Portfolio Choice and Transactions Taxes

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  • Haberer, Markus

Abstract

In a simple portfolio choice model of two assets a foreign exchange transactions tax is implemented. We show that the graph in the mu-sigma[square] 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 financial markets. In contrast, the transactions tax has got a stabilizing character when adjusting the portfolio to increased foreign investment risks.

Suggested Citation

  • Haberer, Markus, 2003. "Portfolio Choice and Transactions Taxes," CoFE Discussion Papers 03/09, University of Konstanz, Center of Finance and Econometrics (CoFE).
    • Handle: RePEc:zbw:cofedp:0309
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    References listed on IDEAS

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    Cited by:

    1. Haberer, Markus, 2004. "Might a Securities Transactions Tax Mitigate Excess Volatility? Some Evidence From the Literature," CoFE Discussion Papers 04/06, University of Konstanz, Center of Finance and Econometrics (CoFE).

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    More about this item

    Keywords

    International Financial Markets; Portfolio Choice; Risk Diversification; Tobin Tax; Transactions Tax;
    All these keywords.

    JEL classification:

    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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