NATIONAL BUREAU OF ECONOMIC RESEARCH
National University of Singapore
Kent Ridge Road
Republic of Singapore
NBER Working Papers and Publications
|March 2014||One Fundamental and Two Taxes: When Does a Tobin Tax Reduce Financial Price Volatility?|
with Yongheng Deng, Shang-Jin Wei: w19974
We aim to make two contributions to the literature on the effects of transaction costs on financial price volatility. First, by using a research design with three ingredients (a common set of companies simultaneously listed on two stock exchanges; binding capital controls; different timing of changes in transaction costs), we obtain a control group that has identical corporate fundamentals as the treatment group and is therefore far cleaner than any in the existing literature. We apply the research design to Chinese stocks that are cross-listed in Hong Kong and Mainland. Second, we entertain the possibility that a given transaction cost can have different effects in immature and mature markets. In an immature market where trading is dominated by retail investors with little knowledge of ac...