The Effects of Stamp Duty on the Level and Volatility of Equity Prices

Bank of England Working Paper No 71

41 Pages Posted: 1 Jun 1998  

Victoria Saporta

Bank of England

Kamhon Kan

Academia Sinica - Institute of Economics

Date Written: October 1997

Abstract

This paper investigates the effects of stamp duty -the UK securities transaction tax - on the level and volatility of equity prices. The authors examine the response of the equity market to announcements of changes in stamp duty rates and compare the prices of two assets which are similar in all respects apart from their treatment for stamp duty purposes: American Depositary Receipts (ADRs) and their London Stock Exchange-traded stocks. The findings are consistent with the hypothesis that stamp duty is capitalised in prices. Using univariate GARCH models, the authors find that stamp duty has no effect on volatility, contradicting the key hypothesis put
forward by proponents of transaction taxes.

JEL Classification: G12

Suggested Citation

Saporta, Victoria and Kan, Kamhon, The Effects of Stamp Duty on the Level and Volatility of Equity Prices (October 1997). Bank of England Working Paper No 71. Available at SSRN: https://ssrn.com/abstract=93656 or http://dx.doi.org/10.2139/ssrn.93656

Victoria Saporta (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Kamhon Kan

Academia Sinica - Institute of Economics ( email )

128 Academia Road, Section 2
Nankang
Taipei, 11529
Taiwan

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