Transaction taxes and traders with heterogeneous investment horizons in an agent-based financial market model

Artikel

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Economics: The Open-Access, Open-Assessment E-Journal ; ISSN: 1864-6042 ; Volume: 4 ; Year: 2010 ; Issue: 2010-8 ; Pages: 1-44 ; Kiel: Kiel Institute for the World Economy (IfW)

Classification and Topics

• Classification: Wirtschaft ; Statistical Simulation Methods: General ; Expectations; Speculations ; Financial Crises ; International Financial Markets ; General Financial Markets: Government Policy and Regulation
• Subject: Agent-based models ; financial market stability ; regulation of financial Markets ; technical and fundamental analysis ; transaction taxes ; Tobinsteuer ; Anlageverhalten ; Institutioneller Anleger ; Devisenmarkt ; Wechselkurs ; Volatilität ; Wirkungsanalyse ; Agent-based Model ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Demary, Markus
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2010

Further information

• DOI: doi:10.5018/economics-ejournal.ja.2010-8
• Handle: http://hdl.handle.net/10419/30070
• Last update: 10.03.2025, 11:46 AM CET