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Effects of Tobin taxes in minority game markets

By Ginestra Bianconi, Tobias Galla and Matteo Marsili

Abstract

We show that the introduction of Tobin taxes in agent-based models of currency markets can lead to a reduction of speculative trading and reduce the magnitude of exchange rate fluctuations at intermediate tax rates. In this regime revenues for the market maker obtained from speculators are maximal. We here focus on Minority Game models of markets, which are accessible by exact techniques from statistical mechanics. Results are supported by computer simulations. Our findings suggest that at finite systems sizes the effect is most pronounced in a critical region around the phase transition of the infinite system, but much weaker if the market is operating far from criticality and does not exhibit anomalous fluctuations

Topics: HG
Publisher: Warwick Business School, Financial Econometrics Research Centre
Year: 2006
OAI identifier: oai:wrap.warwick.ac.uk:1760

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