IDEAS home Printed from
   My bibliography  Save this paper

Boom-Bust Cycles and Trading Practices in Asset Markets, the Real Economy and the Effects of a Financial Transactions Tax


  • Stephan Schulmeister


Over the past three decades, trading in asset markets has become progressively more short-term oriented ("faster"), with traders attempting to exploit intraday price trends. Yet, over this time, asset prices have continued to move in a sequence of alternating "bull markets" and "bear markets", often lasting several years. Which type of trading behaviour over the (very) short run leads to the irregular bull and bear phases over the longer run? The paper finds that "bull (bear) markets" are brought about because upward (downward) price runs last longer than counter-movements for an extended period of time. This pattern results from "trading as usual", which employs "technical analysis" to exploit asset price trends and, in doing so, reinforces the price trends. The recent financial crisis spilled over to the real economy mainly through the simultaneous devaluation of stock, housing and commodity wealth. The severity of these "bear markets" was the result of the long upward climb of prices during the preceding "bull markets." The paper argues that a financial transactions tax would reduce the profitability of short-term trend-chasing in derivatives markets (fundamentals-oriented trading would hardly be affected). By doing so, a transactions tax would limit the magnitude of the "long swings" in asset prices.

Suggested Citation

  • Stephan Schulmeister, 2010. "Boom-Bust Cycles and Trading Practices in Asset Markets, the Real Economy and the Effects of a Financial Transactions Tax," WIFO Working Papers 364, WIFO.
  • Handle: RePEc:wfo:wpaper:y:2010:i:364

    Download full text from publisher

    File URL:
    File Function: Abstract
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. repec:ilo:ilowps:484767 is not listed on IDEAS
    2. Stephan Schulmeister, 2015. "The struggle over the Financial Transactions Tax. A politico-economic farce," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 15-55.
    3. Wahl, Peter., 2014. "The European civil society campaign on the financial transaction tax," ILO Working Papers 994847673402676, International Labour Organization.
    4. Stephan Schulmeister, 2013. "The European Monetary Fund. A systemic problem needs a systemic solution," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 389-424.
    5. Helene Schuberth & Stephan Schulmeister, 2011. "Settlement Systems and Financial Transactions Taxes," WIFO Studies, WIFO, number 42610, September.
    6. Catherine Mathieu & Henri Sterdyniak, 2013. "The euro area in crisis," Sciences Po publications info:hdl:2441/2k5dq3ilav9, Sciences Po.
    7. Jorge Garcia-Arias & Eduardo Fernandez-Huerga & Ana Salvador, 2013. "European Periphery Crises, International Financial Markets, and Democracy," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(4), pages 826-850, October.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wfo:wpaper:y:2010:i:364. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ilse Schulz). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.