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

Cipriani, Marco, Guarino, Antonio and Uthemann, Andreas (2019) Financial transaction taxes and the informational efficiency of financial markets: a structural estimation. Systemic Risk Centre Discussion Papers (88). Systemic Risk Centre, The London School of Economics and Political Science, London, UK.

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Abstract

We develop a new methodology to estimate the impact of a financial transaction tax (FTT) on informational efficiency, liquidity and volatility. In our sequential trading model there are price elastic noise traders and traders with private information of heterogeneous quality. We estimate the model without a tax and then quantify the elect of an FTT. In our sample, noise traders are price elastic but less so than informed traders. The introduction of an FTT changes the composition of the market, lowering informational efficiency. Even a small, 5 bps, FTT impedes correct price convergence on a sizeable percentage of days.

Item Type: Monograph (Discussion Paper)
Official URL: https://www.systemicrisk.ac.uk/
Additional Information: © 2019 The Authors
Divisions: Systemic Risk Centre
Subjects: H Social Sciences > HC Economic History and Conditions
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: 31 May 2023 10:36
Last Modified: 16 May 2024 12:27
URI: http://eprints.lse.ac.uk/id/eprint/118905

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