Transaction Costs and Price Volatility: New Evidence from the Tokyo Stock Exchange |
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| Authors: | Shinhua Liu Zhen Zhu |
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| Institution: | (1) School of Business, Kentucky State University, Frankfort, KY 40601, USA;(2) Department of Economics, University of Central Oklahoma, Edmond, OK 73034, USA |
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| Abstract: | We investigate the volatility impacts of the full commission deregulation in Japan in October 1999, and find that the deregulation
overall tends to significantly increase price volatility in the Japanese equity market, using alternative model specifications
and control variables. This finding contrasts with previous evidence that implies a positive relation between transaction
costs and price volatility, while consistent from the converse with the hypothesis proposed by Stiglitz (1989) and Summers and Summers (1989). Our results suggest that imposing higher transaction costs might still be a feasible policy tool for stabilizing the market
by curbing short-term noise trading.
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| Keywords: | JEL classification" target="_blank">JEL classification G14 G15 G18 |
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