SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

Abstract: The effect of a securities transaction tax on price volatility is estimated on a sample of 11 years of quarterly data from 14 stock markets in different countries. No effect, positive or negative, is found if the volatility is assumed to be monnotonously increasing or decreasing in the tax rate. If the sample is divided into two clusters of equal size, one with tax rates from zero to 0.34 per cent of the transaction value and the second with tax rates from 0.50 per cent to 2 per cent (1 per cent on the buyer and 1 per cent on the seller), evidence is found that tax rates avovce 0.5 per cent increase volatility whereas low tax rates have no significant effect on volatility.

Keywords: Taxes; stock markets; volatility

JEL-codes: G10; H30

24 pages, October 1994

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