The Impact Of The Decrease Of Stamp Duty Rate For Securities Transactions On The Volatility Of Chinese A Stock Markets--An Empirical Study

It has been alleged that securities transaction tax has an effect on stock market volatility. In China, some scholars consider that because the cost of noise trades will be cut down through the decrease of the stamp duty rate for securities transactions, the market volatility will increase. This paper provides an empirical study on the impact of the decrease of the stamp duty rate for securities transactions, made on November 16, 2001, on the volatility of Shanghai and Shenzhen A stock markets. We examine the impact mainly by means of Variance Equality Test and GARCH model. We find that the volatility of Shanghai and Shenzhen A stock markets significantly decreases within 30 trading days after the decrease of the stamp duty rate. But within 45, 60, 75 trading days, the impact on the market volatility is insignificant. We also find that in the longer period after November 16, 2001, the impact on the volatility of Shanghai and Shenzhen A stock markets is not statistically significant. There might be some causes, we think, resulting in this phenomenon. For example, it could be caused by the investors' trades in advance of the government's announcement of decreasing the stamp duty rate. In addition, it could also be caused by the increase in the opportunity cost of the illegal manipulations after the strengthening of the government's superintendence to the stock markets. We provide the following policy suggestions. First, our government should continue to decrease the stamp duty rate, and at the same time impose a broad-based securities transaction tax. Second, continue reinforcing the superintendence to the stock markets.