Financial transaction taxes and the informational efficiency of financial markets: a structural estimation

Cipriani, Marco, Guarino, Antonio and Uthemann, Andreas (2022) Financial transaction taxes and the informational efficiency of financial markets: a structural estimation. Journal of Financial Economics, 146 (3). 1044 - 1072. ISSN 0304-405X

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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 60 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.

Item Type:	Article
Official URL:	https://www.sciencedirect.com/journal/journal-of-f...
Additional Information:	© 2022 Elsevier B.V.
Divisions:	Systemic Risk Centre
Subjects:	H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C13 - Estimation
Date Deposited:	26 Jul 2022 16:39
Last Modified:	08 Apr 2024 02:33
URI:	http://eprints.lse.ac.uk/id/eprint/115664

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