FINANCIAL TRANSACTION TAXATION IN AGENT-BASED SIMULATION
Name and surname of author:
Roman Šperka, Irena Szarowská
Financial transaction tax, agent-based model, technical and fundamental analysis, simulation
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.