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Impact of a Financial Transaction Tax on a Financial Market

Author

Listed:
  • Roman Šperka

    () (Departament of Informatics and Mathematics, School of Business Administration, Silesian University)

  • Irena Szarowská

    () (Department of Finance and Accounting, School of Business Administration, Silesian University)

Abstract

The aim of this paper is to investigate the impact of financial transaction tax (FTT) on the stability of financial market. The paper presents an agent-based financial market model and simulations, in which agents follow technical and fundamental trading rules to determine their speculative investment positions. The model developed by Westerhoff (2009) was chosen for the implementation and it was extended by FTT and arising transaction costs. As FTT may be defined variously, assets are understood as a tax object in this paper. The model includes direct interactions between speculators due to which they may decide to change their trading behaviour and deals with a technical and fundamental strategy of market participants. Results suggest that the modified model has a tendency to stabilize itself in a long-term if the fundamental trading rules overbear the technical trading method. This could be used, when the bubbles and the crashes occur in a financial market. Assets price would be stabilized, because its value targets near the fundamental value and the volatility would be also minimized. Substantial is setting the FTT at a low rate for market stabilization. If FTT and consequent transaction costs are too high, the financial system destabilizes and the price grows without limit.

Suggested Citation

  • Roman Šperka & Irena Szarowská, 2015. "Impact of a Financial Transaction Tax on a Financial Market," Working Papers 0013, Silesian University, School of Business Administration.
  • Handle: RePEc:opa:wpaper:0013
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    financial transaction tax; agent-based model; financial market; technical and fundamental analysis; simulation;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software

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