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the problem with transaction taxes is, if they are high, they reduce trading and liquidity. When you go to buy and sell stocks, or futures or govt bonds, what
by vasilipupkin 11y ago
the problem with transaction taxes is, if they are high, they reduce trading and liquidity. When you go to buy and sell stocks, or futures or govt bonds, what do you think is the process that keeps the difference between bid ( buy ) price and ask ( sell price ) relatively narrow ? it's the frequent trading process that does it
- tomchristie 11y agoDoes anyone know if regulations on minimum terms for holding period for stock ever been used/considered in modern markets? (eg. day/week/month?) I realize that it'd effect liquidity in a similar way to transactional taxes (portion of portfolio tied up in term at any given point) but could it also reduce volatility and ensure trading against long term value rather than short term artifacts?
- vasilipupkin 11y agono, it would increase volatility. People think that volatility increases with trading. In fact, volatility can be very high without trading. Because the prices at which people can trade will fluctuate even more if you make it harder to trade
- tomchristie 11y agoI understand we can speculate that volatility could increase due to lower trading volumes, but the lower volumes aren't the only factor to take into account in this scenario.
- vasilipupkin 11y agoright, well, think of it this way. Trading process is the process of price discovery. Most recent traded price is the current price for the asset, assuming it's trading frequently. An infrequently traded asset creates more uncertainty about what is its actual current market price. And volatility is a function of uncertainty.