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

Marco Cipriani, Antonio Guarino and Andreas Uthemann

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: Financial transaction tax; Market microstructure; Structural estimation (search for similar items in EconPapers)
JEL-codes: C13 D82 G14 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2022-12-01
New Economics Papers: this item is included in nep-fdg and nep-mst
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Published in Journal of Financial Economics, 1, December, 2022, 146(3), pp. 1044 - 1072. ISSN: 0304-405X

Downloads: (external link)
http://eprints.lse.ac.uk/115664/ Open access version. (application/pdf)

Related works:
Journal Article: Financial transaction taxes and the informational efficiency of financial markets: A structural estimation (2022)
Working Paper: Financial Transaction Taxes and the Informational Efficiency of Financial Markets: A Structural Estimation (2022)
Working Paper: Financial Transaction Taxes and the Informational Efficiency of Financial Markets: A Structural Estimation (2021)
Working Paper: Financial transaction taxes and the informational efficiency of financial markets: a structural estimation (2019)
Working Paper: Financial transaction taxes and the informational efficiency of financial markets: a structural estimation (2019)
Working Paper: Financial Transaction Taxes anf the Informational Efficiency of Financial Markets: A Structural Estimation (2015)
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