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Turnover tax, transaction cost and stock trading volume revisited: investigation of the Japanese case

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  • Minoru Hayashida
  • Hiroyuki Ono

Abstract

Global financial turmoil in recent years has resulted in renewed interest in Stock Transaction Taxes (STT). Given that the existing literature on the quantitative impact of STT on turnover is limited and/or outdated, this article reinvestigates the issue, taking up the Japanese market reforms during the 1990s as an example. The analysis using an ordinary, fixed parameter model and Bayesian, variable parameter model finds that STT and, more generally, increased transaction cost significantly reduced trading volume. It is also found that the elasticity of turnover somewhat increased as the reforms were implemented. Finally, it is found that even in 2003 the elasticity was considerably smaller in the Japanese market than in European markets many years before.

Suggested Citation

  • Minoru Hayashida & Hiroyuki Ono, 2011. "Turnover tax, transaction cost and stock trading volume revisited: investigation of the Japanese case," Applied Financial Economics, Taylor & Francis Journals, vol. 21(24), pages 1809-1817, December.
    • Handle: RePEc:taf:apfiec:v:21:y:2011:i:24:p:1809-1817
    DOI: 10.1080/09603107.2011.589802
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    References listed on IDEAS

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    1. Badi Baltagi & Dong Li & Qi Li, 2006. "Transaction tax and stock market behavior: evidence from an emerging market," Empirical Economics, Springer, vol. 31(2), pages 393-408, June.
    2. Yongyang Su & Lan Zheng, 2011. "The Impact of Securities Transaction Taxes on the Chinese Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(0), pages 32-46, January.
    3. Lindgren, Ragnar, 1994. "Transaction Taxes and Stock Market Volatility," SSE/EFI Working Paper Series in Economics and Finance 25, Stockholm School of Economics.
    4. Lamoureux, Christopher G & Lastrapes, William D, 1994. "Endogenous Trading Volume and Momentum in Stock-Return Volatility," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 253-260, April.
    5. Andersen, Torben G, 1996. "Return Volatility and Trading Volume: An Information Flow Interpretation of Stochastic Volatility," Journal of Finance, American Finance Association, vol. 51(1), pages 169-204, March.
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    Cited by:

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    2. Sinha, Pankaj & Mathur, Kritika, 2012. "Evolution of security transaction tax in India," MPRA Paper 40165, University Library of Munich, Germany.
    3. Yok-Yong Lee & M. H. Yahya & A. M. Bany-Ariffin & S. Aslam, 2018. "Leverage Effect and Switching of Market Efficiency Post Goods and Services Tax (GST) Imposition," International Business Research, Canadian Center of Science and Education, vol. 11(3), pages 162-178, March.
    4. Sinha, Pankaj & Mathur, Kritika, 2015. "Impact of Commodities Transaction Tax on Indian Commodity Futures," MPRA Paper 63677, University Library of Munich, Germany.
    5. Sanjay Sehgal & Tarunika Jain Agrawal, 2019. "Impact of Commodity Transaction Tax on Market Liquidity, Volatility, and Government Revenues: An Empirical Study for India," Vikalpa: The Journal for Decision Makers, , vol. 44(1), pages 12-29, March.
    6. Hayashida, Minoru & Ono, Hiroyuki, 2016. "Tax reforms and stock return volatility: The case of Japan," Journal of Asian Economics, Elsevier, vol. 45(C), pages 1-14.
    7. Eichfelder, Sebastian & Lau, Mona, 2016. "Financial transaction taxes: Announcement effects, short-run effects, and long-run effects," arqus Discussion Papers in Quantitative Tax Research 211, arqus - Arbeitskreis Quantitative Steuerlehre.

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