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The effects of Stamp Duty on the Level and Volatility of Equity Prices

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  • Victoria Saporta
  • Kamhon Kan

Abstract

This paper investigates the effects of stamp duty - the UK securities transaction tax - on the level and volatility of equity prices. The authors examine the response of the equity market to announcements of changes in stamp duty rates and compare the prices of two assets which are similar in all respects apart from their treatment for stamp duty purposes: American Depositary Receipts (ADRs) and their London Stock Exchange-traded stocks. The findings are consistent with the hypothesis that stamp duty is capitalised in prices. Using univariate GARCH models, the authors find that stamp duty has no effect on volatility, contradicting the key hypothesis put forward by proponents of transaction taxes.

Suggested Citation

  • Victoria Saporta & Kamhon Kan, 1997. "The effects of Stamp Duty on the Level and Volatility of Equity Prices," Bank of England working papers 71, Bank of England.
  • Handle: RePEc:boe:boeewp:71
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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/1997/wp71.pdf
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. "Help for first-time buyers"?
      by chris dillow in Stumbling and Mumbling on 2010-04-13 18:09:12
    2. Against a transactions tax
      by chris dillow in Stumbling and Mumbling on 2009-11-08 18:54:57

    Citations

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    Cited by:

    1. Hvozdyk, Lyudmyla & Rustanov, Serik, 2016. "The effect of financial transaction tax on market liquidity and volatility: An Italian perspective," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 62-78.
    2. Capelle-Blancard, Gunther & Havrylchyk, Olena, 2016. "The impact of the French securities transaction tax on market liquidity and volatility," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 166-178.
    3. Alex Bowen, 2011. "Raising climate finance to support developing country action: some economic considerations," Climate Policy, Taylor & Francis Journals, vol. 11(3), pages 1020-1036, May.
    4. repec:eee:ecmode:v:67:y:2017:i:c:p:307-315 is not listed on IDEAS
    5. Hayashida, Minoru & Ono, Hiroyuki, 2016. "Tax reforms and stock return volatility: The case of Japan," Journal of Asian Economics, Elsevier, vol. 45(C), pages 1-14.
    6. repec:eee:finana:v:53:y:2017:i:c:p:12-24 is not listed on IDEAS
    7. Benoît Carmichael & Jean Armand Gnagne & Kevin Moran, 2015. "Securities Transactions Taxes and Financial Crises," CIRANO Working Papers 2015s-23, CIRANO.
    8. Zsolt Darvas & Jakob Weizsäcker, 2011. "Financial transaction tax: Small is beautiful," Society and Economy, Akadémiai Kiadó, Hungary, vol. 33(3), pages 449-473, December.
    9. Waldenstrom, Daniel, 2002. "Taxing Emerging Stock Markets: A Beneficial Policy? Evidence from the Stockholm Stock Exchange, 1907-1939," Explorations in Economic History, Elsevier, vol. 39(1), pages 29-45, January.
    10. 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.
    11. Alonso, Miguel A. & Rallo, Juan Ramón & Romero, Alberto, 2013. "El efecto de los impuestos a las transacciones financieras en la estabilidad de los mercados de capital. Un debate sin resolver," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(317), pages 207-231, enero-mar.
    12. Bowen, Alex, 2011. "Raising finance to support developing country action: some economic considerations," LSE Research Online Documents on Economics 37572, London School of Economics and Political Science, LSE Library.
    13. Karl F Habermeier & Andrei A Kirilenko, 2001. "Securities Transaction Taxes and Financial Markets," IMF Working Papers 01/51, International Monetary Fund.
    14. Sinha, Pankaj & Mathur, Kritika, 2015. "Impact of Commodities Transaction Tax on Indian Commodity Futures," MPRA Paper 63677, University Library of Munich, Germany.

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