If you need an accessible version of this item please contact JSTOR User Support

The Role of Transaction Costs for Financial Volatility: Evidence from the Paris Bourse

Harald Hau
Journal of the European Economic Association
Vol. 4, No. 4 (Jun., 2006), pp. 862-890
Published by: Wiley on behalf of European Economic Association
Stable URL: http://www.jstor.org/stable/40004820
Page Count: 29
  • Download PDF
  • Cite this Item

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If you need an accessible version of this item please contact JSTOR User Support
The Role of Transaction Costs for Financial Volatility: Evidence from the Paris Bourse
Preview not available

Abstract

This paper analyzes the causal linkage between transaction costs and financial volatility under two methodological improvements over the existing literature. First, we use panel data in which exogenous transaction cost differences in the French stock market are induced by price level dependent minimum price variation rules (tick size rules). Unlike in previous studies based on one-time regulatory tick size changes (like the U.S. decimalization), we can separately identify and control for marketwide volatility changes. Second, we avoid the pitfalls of biased volatility measurement across regimes by using the range as a tick size robust volatility metric. Panel regressions controlling for marketwide volatility effects show at high levels of statistical significance that the hourly range volatility of individual stocks increases by more than 30% for a 20% exogenous increase in transaction costs due to tick size variations in the French trading system. In the light of this evidence, higher transaction costs in general, and security transaction taxes in particular, should be considered as volatility increasing.

Page Thumbnails

  • Thumbnail: Page 
[862]
    [862]
  • Thumbnail: Page 
863
    863
  • Thumbnail: Page 
864
    864
  • Thumbnail: Page 
865
    865
  • Thumbnail: Page 
866
    866
  • Thumbnail: Page 
867
    867
  • Thumbnail: Page 
868
    868
  • Thumbnail: Page 
869
    869
  • Thumbnail: Page 
870
    870
  • Thumbnail: Page 
871
    871
  • Thumbnail: Page 
872
    872
  • Thumbnail: Page 
873
    873
  • Thumbnail: Page 
874
    874
  • Thumbnail: Page 
875
    875
  • Thumbnail: Page 
876
    876
  • Thumbnail: Page 
877
    877
  • Thumbnail: Page 
878
    878
  • Thumbnail: Page 
879
    879
  • Thumbnail: Page 
880
    880
  • Thumbnail: Page 
881
    881
  • Thumbnail: Page 
882
    882
  • Thumbnail: Page 
883
    883
  • Thumbnail: Page 
884
    884
  • Thumbnail: Page 
885
    885
  • Thumbnail: Page 
886
    886
  • Thumbnail: Page 
887
    887
  • Thumbnail: Page 
888
    888
  • Thumbnail: Page 
889
    889
  • Thumbnail: Page 
890
    890