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FINANCIAL TRANSACTION TAXATION IN AGENT-BASED SIMULATION


Finance

FINANCIAL TRANSACTION TAXATION IN AGENT-BASED SIMULATION

Name and surname of author:

Roman Šperka, Irena Szarowská

Year:
2016
Volume:
19
Issue:
2
Keywords:
Financial transaction tax, agent-based model, technical and fundamental analysis, simulation
DOI:
Anotation:
The aim of this paper is to investigate the impact of financial transaction taxes (FTTs) on the stability of financial markets. This paper presents an agent-based financial market model and simulations…more
The aim of this paper is to investigate the impact of financial transaction taxes (FTTs) on the stability of financial markets. This paper presents an agent-based financial market model and simulations in which agents follow technical and fundamental trading rules to determine their speculative investment positions. The model developed by Westerhoff (2009) was chosen for implementation and was extended by FTT and arising transaction costs. Because FTTs may be defined in various ways, this paper defines assets as tax objects. The model includes direct interactions between speculators, which may lead them to decide to change their trading behavior and addresses a technical and a fundamental strategy of market participants. The results suggest that the modified model has a tendency to stabilize itself in the long term if fundamental trading rules outweigh the technical trading method. This model could be used when bubbles and crashes occur in financial markets. Asset prices would be stabilized because their value targets near the fundamental value and volatility would also be minimized. Setting FTTs at a low rate for market stabilization is important. If FTTs and consequent transaction costs are too high, then the financial system will destabilize and prices will grow without limit. The model described in this paper explores dependence market stability to the extent of FTTs. However, the model should not be interpreted as a model only for the introduction of FTT, but as a general model of transaction costs’ influence on the financial market.
Section:
Finance

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