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dc.contributor.authorLANNE, Markku
dc.contributor.authorVESALA, Timo
dc.date.accessioned2006-02-02T09:38:52Z
dc.date.available2006-02-02T09:38:52Z
dc.date.issued2005
dc.identifier.urihttp://hdl.handle.net/1814/3993
dc.description.abstractWe argue that a transaction tax is likely to amplify, not dampen, volatility in the foreign exchange markets. Our argument stems from the decentralized trading practice and the presumable discrepancy between 'informed' and 'uninformed' traders' valuations. Since informed traders' valuations are likely to be less dispersed, a transaction tax penalizes informed trades disproportionately, leading to increased volatility. Empirical support for this prediction is found by investigating the effect of transaction costs on the volatility of DEM/USD and JPY/USD returns. High-frequency data are used and an increase in transaction costs is found to have a significant positive effect on volatilityen
dc.format.extent405205 bytes
dc.format.mimetypeapplication/pdf
dc.language.isoenen
dc.publisherEuropean University Institute
dc.relation.ispartofseriesEUI ECOen
dc.relation.ispartofseries2005/19en
dc.rightsinfo:eu-repo/semantics/openAccess
dc.titleThe effect of a transaction tax on exchange rate volatilityen
dc.typeWorking Paperen
dc.neeo.contributorLANNE|Markku|aut|
dc.neeo.contributorVESALA|Timo|aut|
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