PT Journal
AU Demary, M
TI Transaction Taxes and Traders with Heterogeneous Investment Horizons in an Agent-Based Financial Market Model
SO Economics
PY 2010
VL 4
IS 1
PU Walter de Gruyter GmbH
DI 10.5018/economics-ejournal.ja.2010-8
WP https://macau.uni-kiel.de/receive/macau_mods_00005991
LA en
DE Agent-based models; financial market stability; regulation; financial Markets; technical analysis; fundamental analysis; transaction taxes
SN 1864-6042
AB 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 MarketModels 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.
PI Berlin; Kiel
ER