The effectiveness of Keynes-Tobin transaction taxes when heterogeneous agents can trade in different markets: A behavioral finance approach

Frank Westerhoff

No 14, Computing in Economics and Finance 2004 from Society for Computational Economics

Abstract: We develop a model in which boundedly rational agents apply technical and fundamental analysis to identify trading signals in two different speculative markets. Whether an agent trades and, if so, in which market with which strategy depends on profit considerations. As it turns out, an ongoing evolutionary competition between the trading strategies causes complex price dynamics which closely resembles the behavior of actual speculative prices. Moreover, we find that if the agents have to pay a transaction tax in one market, price variability decreases in this market but increases in the other market. However, the imposition of a uniform tax on all transactions stabilizes both markets. Our results suggest that if regulators of a market introduce a transaction tax, other markets are likely to follow

Keywords: speculative markets; transaction tax; heterogeneous agents; technical and fundamental analysis (search for similar items in EconPapers)
JEL-codes: D84 G14 G18 (search for similar items in EconPapers)
Date: 2004-08-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Journal Article: The effectiveness of Keynes-Tobin transaction taxes when heterogeneous agents can trade in different markets: A behavioral finance approach (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf4:14

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