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Financial Transaction Taxes and the Informational Efficiency of Financial Markets: A Structural Estimation

Author

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  • Cipriani, Marco
  • Guarino, Antonio
  • Uthemann, Andreas

Abstract

We develop a new methodology to estimate the impact of a financial transaction tax (FTT) on financial market outcomes. In our sequential trading model, there are price-elastic noise and informed traders. We estimate the model through maximum likelihood for a sample of sixty New York Stock Exchange (NYSE) stocks in 2017. We quantify the effect of introducing an FTT given the parameter estimates. An FTT increases the proportion of informed trading, improves information aggregation, but lowers trading volume and welfare. For some less liquid stocks, however, an FTT blocks private information aggregation.

Suggested Citation

  • Cipriani, Marco & Guarino, Antonio & Uthemann, Andreas, 2022. "Financial Transaction Taxes and the Informational Efficiency of Financial Markets: A Structural Estimation," CEPR Discussion Papers 17238, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17238
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    Cited by:

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    2. Pengguang Lu, 2023. "A Simple Model of Herding and Contrarian Behaviour with Biased Informed Traders," Economics Discussion Paper Series 2307, Economics, The University of Manchester, revised Dec 2023.
    3. Wang, Liming & Sun, Xuchu & Zhu, Hongliang & Li, Tangrong, 2025. "Exploring the dynamic impact of transaction taxes on market quality in HFT and non-HFT environments: An agent-based modeling approach," The North American Journal of Economics and Finance, Elsevier, vol. 76(C).

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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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