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Securities transaction tax and the stock market– an Indian experience

Pankaj Sinha () and Kritika Mathur

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies the effect of Securities Transaction Tax (STT) on the behavior of the returns on the Indian stock market using a switching first order autocorrelation model. It is found that an increase in STT doesn’t influence the return on American Depository Receipts (ADRs) which are dually listed in United States of America and India. The increase in STT doesn’t have a major impact on the returns of the stocks listed on the National Stock Exchange in India whereas it influences the volume of traded shares. Volatility of stocks listed on the National Stock Exchange in India is affected by the change in tax level and thus investors switch from large and medium sized stocks to small sized stocks to mitigate the risk.

Keywords: Securities Transaction Taxes; Stock Markets; Returns; Risk (search for similar items in EconPapers)
JEL-codes: G14 G18 G28 (search for similar items in EconPapers)
Date: 2012-11-20
New Economics Papers: this item is included in nep-pbe
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