Abstract

This independent study looks at how transaction taxes affect stock market volatility. The study hypothesizes that transaction taxes limit speculative trading, thereby lowering market volatility. The literature reviewed for the study finds conflicting results about the efficiency of financial transaction taxes (FTTs) in lowering market volatility. In the theoretical analysis of the study, a modified Tobin tax model and the noise trader risk model are used to explain the complex relationship behind the stock market's volatility mechanism. They show how transaction taxes, speculative trading, and volatility are related.

The study’s empirical chapter adopts a dual-method approach and focuses on Spain's introduction of the financial transaction tax in 2021. Both methods utilize the 30-day rolling standard deviation of daily returns to calculate volatility. A micro-level regression analysis looks at 35 individual stocks within the IBEX 35, while a macro-level time series analysis contrasts the IBEX-35 index with the Dutch AEX 25 index. For the regression analysis, factors like tax implementation, trading volume, and bid-ask spreads are taken into account. The results of both the univariate and multivariate regression models demonstrate that the FTT greatly decreased Spain's stock volatility. The macro-level research supports these results, showing that the IBEX 35 had less volatility after the FTT was implemented than the AEX index.

Advisor

Tian, Huiting

Department

Economics

Disciplines

Portfolio and Security Analysis | Taxation

Publication Date

2025

Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis

Download

Share

COinS
 

© Copyright 2025 Alan Musabeyezu