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Market responses to the China's transaction cost changes: An analysis of volatility dynamics

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  • Xu, Zailin
  • Chen, Xiaoyijing
  • Yu, Mei

Abstract

This paper analyzes the effects of China's fiscal tax policy changes. By exploring the immediate market responses and subsequent volatility, the study highlights the unanticipated nature of the tax hike and its significant impact on market dynamics. Using high-frequency trading data, the analysis demonstrates increased market volatility and reduced trading volumes following the tax adjustment. Comparative analysis with later adjustments in 2008 and 2023 further explains the differential impacts of such fiscal measures on various types of stocks. The findings emphasize the necessity for policymakers to consider market expectations and the specific characteristics of securities when implementing transaction taxes, suggesting approaches to reducing adverse market reactions and enhancing market stability.

Suggested Citation

  • Xu, Zailin & Chen, Xiaoyijing & Yu, Mei, 2025. "Market responses to the China's transaction cost changes: An analysis of volatility dynamics," Pacific-Basin Finance Journal, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:pacfin:v:89:y:2025:i:c:s0927538x24003500
    DOI: 10.1016/j.pacfin.2024.102598
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    References listed on IDEAS

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