Portfolio Choice and Transactions Taxes

University of Konstanz Discussion Paper No. 03/09

25 Pages Posted: 3 Nov 2004

See all articles by Markus Haberer

Markus Haberer

University of Konstanz - Department of Economics

Date Written: August 2003

Abstract

In a simple portfolio choice model of two assets, a foreign exchange transactions tax is implemented. We show that the graph in the mu-sigma(2)-range is still a parabola and delineate its characteristics for altering tax rates. We presumed a risk avers investor seeking to minimize investment risks by international diversification of two uncorrelated assets. The main finding is that setting up a portfolio under the new tax condition leads to a higher transaction volume on international financial markets. In contrast, the transactions tax has got a stabilizing character when adjusting the portfolio to increased foreign investment risks.

Keywords: International financial markets, portfolio choice, risk diversification, Tobin tax, transactions tax

JEL Classification: G11, G15, G18, H29, H39, O16, O23

Suggested Citation

Haberer, Markus, Portfolio Choice and Transactions Taxes (August 2003). University of Konstanz Discussion Paper No. 03/09, Available at SSRN: https://ssrn.com/abstract=612982 or http://dx.doi.org/10.2139/ssrn.612982

Markus Haberer (Contact Author)

University of Konstanz - Department of Economics ( email )

Konstanz, D-78457
Germany

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