Does an Equity Holding Tax Help to Stabilize a VaR Regulated Financial Market?

Barucci, Emilio; Cosso, Andrea

doi:10.2139/ssrn.1715051

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Does an Equity Holding Tax Help to Stabilize a VaR Regulated Financial Market?

33 Pages Posted: 26 Nov 2010 Last revised: 3 Feb 2011

See all articles by Emilio Barucci

Emilio Barucci

Politecnico di Milano - Department of Mathematics

Andrea Cosso

Polytechnic University of Milan - Department of Mathematics

Date Written: February 1, 2011

Abstract

We investigate the capability of an equity holding tax to stabilize a VaR regulated financial market. We show that a VaR constraint induces high volatility in a distressed financial market, the phenomenon is not observed in a market with risk averse unregulated traders. A tax on equity holding smoothes the peak of volatility and stabilizes the market.

Keywords: Equity Holding Tax, VaR, Financial Stability, Volatility

JEL Classification: G11, G18

Suggested Citation: Suggested Citation

Barucci, Emilio and Cosso, Andrea, Does an Equity Holding Tax Help to Stabilize a VaR Regulated Financial Market? (February 1, 2011). Available at SSRN: https://ssrn.com/abstract=1715051 or http://dx.doi.org/10.2139/ssrn.1715051