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Effects of securities transaction taxes on depth and bid-ask spread

Dupont, Dominique Y. ; Lee, Gabriel


This note investigates the effects of introducing a transaction tax on depth and bid-ask spread using a static model where a competitive market maker faces informed and liquidity traders. When the degree of information asymmetry is low, an increase in the transaction tax can result into a smaller rise in the selling price and the depth may even increase in some cases.When information asymmetry is ...


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