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Transaction costs and volatility on Warsaw Stock Exchange: implications for financial transaction tax

Author

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  • Michał Zator

    (Uniwersytet Ekonomiczny we Wrocławiu)

Abstract

We present the concept of financial transaction tax (Tobin tax, FTT) and describe its potential consequences. We analyse the relation between transaction costs and volatility of prices by presenting empirical evidence from Warsaw Stock Exchange and exploiting the natural experiment of varying tick size. A higher tick size (and thus increased transaction costs) seems to be connected to higher volatility. Since increased transaction costs may be a proxy for the effect of FTT, our findings may be interpreted as an evidence against the stabilizing role of the tax.

Suggested Citation

  • Michał Zator, 2014. "Transaction costs and volatility on Warsaw Stock Exchange: implications for financial transaction tax," Bank i Kredyt, Narodowy Bank Polski, vol. 45(4), pages 349-372.
  • Handle: RePEc:nbp:nbpbik:v:45:y:2014:i:4:p:349-372
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    More about this item

    Keywords

    transaction costs; volatility; Tobin tax; financial transaction tax;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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