Transaction taxes and traders with heterogeneous investment horizons in an agent-based financial market model

Markus Demary

Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), 2010, vol. 4, No 2010-8, 44 pages

Abstract: This agent-based financial market model is a generalization of the model of Westerhoff (The Use of Agent-Based Financial Market Models to Test the Effectiveness of Regulatory Policies) by traders who are allowed to have different investment horizons as introduced by Demary (Who Does a Currency Transaction Tax Harm More: Short-Term Speculators or Long-Term Investors?). Our research goals are, first, to study what consequences the introduction of heterogeneous investment horizons has for agent-based financial market models, and second, how effective transaction taxes are in stabilizing financial markets. Numerical simulations reveal that under sufficiently small tax rates traders abstain from short-term trading in favour of longer investment horizons. This change in behavior leads to less volatility and less mispricings. When the tax rate exceeds a certain threshold, however, mispricings increase as also found in Westerhoff (Heterogeneous Traders and the Tobin Tax and The Use of Agent-Based Financial Market Models to Test the Effectiveness of Regulatory Policies). This emergent property is due to the fact that taxation reduces short-term fluctuations and causes longer lasting trends in the exchange rate. As a result, the longer term fundamentalist trading rule becomes unpopular in favor of the longer term trend-chasing rule.

Keywords: Agent-based models; financial market stability; regulation of financial Markets; technical and fundamental analysis; transaction taxes (search for similar items in EconPapers)
JEL-codes: C15 D84 G01 G15 G18 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://dx.doi.org/10.5018/economics-ejournal.ja.2010-8
https://www.econstor.eu/bitstream/10419/30070/1/619889764.pdf (application/pdf)

Related works:
Working Paper: Transaction taxes and traders with heterogeneous investment horizons in an agent-based financial market model / (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifweej:20108

DOI: 10.5018/economics-ejournal.ja.2010-8

Access Statistics for this article

Economics - The Open-Access, Open-Assessment E-Journal (2007-2020) is currently edited by Dennis J. Snower

More articles in Economics - The Open-Access, Open-Assessment E-Journal (2007-2020) from Kiel Institute for the World Economy (IfW Kiel) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().