Portfolio Choice and Transactions Taxes

Markus Haberer ()
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Markus Haberer: Department of Economics, University of Konstanz

No 03-09, CoFE Discussion Paper from Center of Finance and Econometrics, University of Konstanz

Abstract: In a simple portfolio choice model of two assets a foreign exchange transactions tax is implemented. We show that the graph in the mu-sigma- range is still a parabola and delineate its characteristics for altering tax rates. We presumed a risk avers investor seeking to minimize investment risks by international diversification of two uncorrelated assets. The main finding is that setting up a portfolio under the new tax condition leads to a higher transaction volume on international fi- nancial markets. In contrast, the transactions tax has got a stabilizing character when adjusting the portfolio to increased foreign investment risks.

Keywords: International Financial Markets; Portfolio Choice; Risk Diversification; Tobin Tax; Transactions Tax (search for similar items in EconPapers)
Date: 2003-08
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