The Research On The Effects Of Securities Transaction Tax Based On Investors’ Beliefs Heterogeneity

As is evident from its influence on transaction costs in the financial market,securities transaction tax (STT) imposes a significant effect on the efficiency of thefinancial markets. Indeed, in reaction to the recent financial crisis increased attentionhas recently been given to STT as a means of helping to curb financial market excessesby the policy makers, practioners as well as the academicians. Research on the realeconomic effects of STT, acquiring its interpretation, further measuring the transactiontax policy regulation effectiveness and exploring advanced approaches to enhanceregulation efficiency, are vital to constructing more effective regulatory policies andimproving the govenmental intervention efficiency, eventually promoting thedevelopment of the security market and the financial market. It is about a necessarysystem arrangement related to the stability of the national finance security, and whichcan also gurantee the smooth operation of the economy.This paper presents following the way of existing theory introduction, qualitativeanalysis and quantitative study. From the perspective of modern behavioral finance andbased on the review and comments of basic theory, related research, and internationalexperiences of STT, the paper attempts to figure out the causes and effects of STT withthe methodology of theoretical and quantitative approaches.The paper employsnonlinear dynamic stochastic model and econometric models like structural vectorautoregression(SVAR), exponential GARCH model, data envoloping analysis(DEA)and Tobit regression method, and acquires several important conclusions.Firstly, the paper studies the real economic effects of STT from long-term andshort-term stages. With the help of dynamic stochastic general-equilibrium theoreticalmodel featuring closed economy and financial frictions, it examines the effects of STTin the long time. The paper describes the mechanism analysis of noise traders’heterogeneous beliefs and market equilibrium price, followed by the demonstration offinal effects of STT to the macroeconomic variables, employing a comparative studywith the structural VAR method and dynamic numetric model. The findings suggestdistortive effects of the STT on real variables similar to those of corporate incometaxation, monetary policy change shock and governmental expenditure shock. With thedaily data in the stock market in China, the paper furthermore analyzes the short-termimpact of changes in the STT on the market. We find that the empirical results for the increase in the STT rate are mixed, either improving market efficiency or curbing it.Reductions ususally either make the market less efficient or have no effect at all. It isinvestors’ opinion diagreements and hetergeneous beliefs to the market fundamentalsoffsetting each other that could exert possible significant impacts on the net effects of aSTT rate change.Secondly, introducing the idea of investor heterogeneous beliefs, from theperspective of investors’ limited attention the paper deeply analyzes the causes of thelong-term and short-term effects of STT, for more comprehensive description of theinner mechanism of the actual impact of STT on the market transactions. Based on thehypothesis of heterogeneous beliefs on common information and the categoricalinformation, the empirical test results indicates that the endogenous interactions ofinvestors heterogeneous beliefs and STT guarantee the influences of a STT change onthe market.Thirdly, the paper addresses the efficacy problem of securities market regulation,which is still a controversial issues in the academics, from the modern behavioralfinance, using the two-stage DEA method review the relation between regulation andefficiency, and thus indirectly to explore transaction tax policy regulatory validity. Itestimates several specifications while controllinig for bank-specific attributes andenvironmental variables accounting for macroeconomic conditions, financialdevelopment market structure. In most cases, the results provide evidence in favour ofthe significant relation between regulatory variables and efficacy of stock marketregulation. However, the STT rate change is negatively related to regulations efficiencyand regulation frequency is not significantly related to efficiency. The results provideempirical support to prove the market regulation effectiveness in the behavioral financeview, as well as reference for the decision-making and selection of regulatory policy.Finally, it comes to the wrapping up of the conclusions based on the above researchresults. And the paper also puts forward some recommendations for policy makers, suchas the securities tax innovation, regulatory beliefs innovation of transaction tax policy,timing optimization of transaction tax regulatory policy, investors beliefs coordination,transaction tax salience as well as tax service improvement, mechanism innovation ofthe securities regulatory environment and other aspects, to improve China’s securitiesmarket regulation effectiveness, strengthening market supervision effect.