Transaction Taxes and Traders with Heterogeneous Investment Horizons in an Agent-Based Financial Market Model [Dataset]

This heterogeneous interacting agents model of a financial market is a generalization
of the model proposed by Westerhoff (The Use of Agent-Based Financial Market
Models to Test the Effectiveness of Regulatory Policies) by traders who are allowed to
have different investment horizons as introduced by Demary (Who Does a Currency
Transaction Tax Harm More: Short-term Speculators or Long-term Investors?). Our
research goals are, first, to study what consequences the introduction of heterogeneous
investment horizons has for agent-based financial market models and second, how
effective transaction taxes are in stabilizing financial markets. In detail, we are
interested in how the popularity of different trading rules and investment horizons
change due to taxation and how emergent properties from the interaction of traders like
bubbles and crashes, excess volatility, excess kurtosis and volatility clustering change.
Numerical simulations reveal that under taxation traders abstain from short-term
trading in favour of longer investment horizons. This change in behavior leads to less
excess volatility and diminishing volatility clusters for small
tax rates. When the tax
rate exceeds a certain threshold, excess volatility and misalignments increase as also
found in Westerhoff (Heterogeneous Traders and the Tobin Tax). The reason is, that
the longer term fundamentalist trading rule becomes unpopular in favor of the longer
term trend-chasing rule.