Transaction tax and stock market behavior: Evidence from an emerging market

Badi H. Baltagi, Dong Li, Qi Li

Research output: Contribution to journalArticlepeer-review

51 Scopus citations

Abstract

This study examines the impact of a stamp tax rate increase on market behavior, using data from two stock exchanges in China. We find that when the tax rate increases from 0.3 to 0.5% (which implies that the transaction cost increases by about 1/3) trading volume decreases by 1/3. This implies an elasticity of turnover with respect to a stamp tax of -50% and an elasticity of turnover with respect to transaction cost of -100%. The markets' volatility significantly increases after the increase in the tax rate. Furthermore, the change in the volatility structure indicates that the markets become less efficient in the sense that shocks are less quickly assimilated in the markets.

Original languageEnglish (US)
Pages (from-to)393-408
Number of pages16
JournalEmpirical Economics
Volume31
Issue number2
DOIs
StatePublished - Jun 1 2006

ASJC Scopus subject areas

  • Statistics and Probability
  • Mathematics (miscellaneous)
  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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