The J-Curve and Transaction Taxes: Insights from an Artificial Stock Market

Abstract

We investigate the distribution of relative returns (RR) among agents who possess varying levels of information in an artificial stock market (ASM). We demonstrate the existence of the J-curve in this market. In contrast to previous studies, the agents in possession of the least information are statistically not different net losers. Moreover, we find that the J-curve is not valid if the relative number of random traders is high. We introduce Tobin-like transaction taxes and show that they destroy liquidity and harm market efficiency. With high taxes, the inequality between agents possessing varying levels of information decreases. However, tax levels dealt with in recent studies influence the market parameters and the J-curve only marginally.

Keywords: J-curve, Artificial stock market, Tobin tax, Heterogeneous agents, Continuous double auction

JEL Classification: G14, G18, E62