The Impact of Securities Transaction Taxes on the Chinese Stock Market

This paper analyzes the impact of changes in the securities transaction tax (STT) rate on the local A-share market in China. We find that, on average, a 22-basis-point increase in the STT rate is associated with about a 28 percent drop in trading volume, and a 17-basis-point reduction in the STT rat...

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Bibliographic Details
Published inEmerging markets finance & trade Vol. 47; no. sup1; pp. 32 - 46
Main Authors Su, Yongyang, Zheng, Lan
Format Journal Article
LanguageEnglish
Published Routledge 01.01.2011
M. E. Sharpe, Inc
M.E. Sharpe, Inc
SeriesEmerging Markets Finance and Trade
Subjects
Efficient markets
Emerging markets
Finance
Financial transactions
Investors
market volatility
Securities markets
securities transaction tax
Standard deviation
stock market
Stock markets
Taxes
Transaction costs
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Summary:This paper analyzes the impact of changes in the securities transaction tax (STT) rate on the local A-share market in China. We find that, on average, a 22-basis-point increase in the STT rate is associated with about a 28 percent drop in trading volume, and a 17-basis-point reduction in the STT rate is associated with about an 89 percent increase in trading volume in the Chinese A-share market. Both increases and reductions in the STT rate result in significant increases in market volatility. In addition, increases in the STT rate have mixed effects on market efficiency, either improving or curbing it. Reductions usually either make the market less efficient or have no effect on it. The empirical results show that levying the STT on trading is not an effective tool to regulate the stock market, at least not in this emerging market.
ISSN:1540-496X
1558-0938
DOI:10.2753/REE1540-496X4701S104