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Title:Transaction taxes and traders with heterogeneous investment horizons in an agent-based financial market model PDF Logo
Authors:Demary, Markus
Issue Date:2010
Citation:[Journal:] Economics: The Open-Access, Open-Assessment E-Journal [Volume:] 4 [Issue:] 2010-8 [Pages:] 1-44 [DOI/URN:] doi:10.5018/economics-ejournal.ja.2010-8
Series/Report no.:Economics 2010-8
Abstract:This agent-based financial market model is a generalization of the model of Westerhoff (The Use of Agent-Based Financial Market Models to Test the Effectiveness of Regulatory Policies) by traders who are allowed to have different investment horizons as introduced by Demary (Who Does a Currency Transaction Tax Harm More: Short-Term Speculators or Long-Term Investors?). Our research goals are, first, to study what consequences the introduction of heterogeneous investment horizons has for agent-based financial market models, and second, how effective transaction taxes are in stabilizing financial markets. Numerical simulations reveal that under sufficiently small tax rates traders abstain from short-term trading in favour of longer investment horizons. This change in behavior leads to less volatility and less mispricings. When the tax rate exceeds a certain threshold, however, mispricings increase as also found in Westerhoff (Heterogeneous Traders and the Tobin Tax and The Use of Agent-Based Financial Market Models to Test the Effectiveness of Regulatory Policies). This emergent property is due to the fact that taxation reduces short-term fluctuations and causes longer lasting trends in the exchange rate. As a result, the longer term fundamentalist trading rule becomes unpopular in favor of the longer term trend-chasing rule.
Subjects:Agent-based models
financial market stability
regulation of financial Markets
technical and fundamental analysis
transaction taxes
JEL:C15
D84
G01
G15
G18
Persistent Identifier of the first edition:doi:10.5018/economics-ejournal.ja.2010-8
URL of the first edition:http://www.economics-ejournal.org/economics/journalarticles/2010-8
Creative Commons License:http://creativecommons.org/licenses/by-nc/2.0/de/deed.en
Document Type:Article
Appears in Collections:Economics: The Open-Access, Open-Assessment E-Journal - Journal Articles

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