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| Title: | | Transaction taxes and traders with heterogeneous investment horizons in an agent-based financial market model  |
| 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: | |  |
| Document Type: | | Article |
| Appears in Collections: | | Economics: The Open-Access, Open-Assessment E-Journal - Journal Articles
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