The Whack-a-Mole Game: Tobin Taxes and Trading Frenzy

Range-based estimation of stochastic volatility models

Jinghan Cai, Jibao He, Wenxi Jiang and Wei Xiong

The Review of Financial Studies, 2021, vol. 34, issue 12, 5723-5755

Abstract: To dampen trading frenzy in the stock market, the Chinese government tripled the stamp tax for stock trading on May 30, 2007. The greatly increased trading cost triggered a migration of the trading frenzy from the stock market to the warrant market, which was not subject to the stamp tax. This migration exacerbated a price bubble in the warrant market. Our analysis of investor account data uncovers not only large inflows of new investors to the warrant market but also greatly intensified trading by existing warrant investors. This episode exemplifies the so-called “whack-a-mole” game in financial regulations.

JEL-codes: G10 G28 G40 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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