The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Optimal Financial Transaction Taxes
Published: 11/07/2022 | DOI: 10.1111/jofi.13188
EDUARDO DÁVILA
This paper characterizes the optimal transaction tax in an equilibrium model of financial markets. If investors hold heterogeneous beliefs unrelated to their fundamental trading motives and the planner calculates welfare using any single belief, a positive tax is optimal, regardless of the magnitude of fundamental trading. Under some conditions, the optimal tax is independent of the planner's belief. The optimal tax can be implemented by adjusting its value until total volume equals fundamental volume. Knowledge of (i) the share of nonfundamental trading volume and (ii) the semielasticity of trading volume to tax changes is sufficient to quantify the optimal tax.
Trading Costs and Informational Efficiency
Published: 02/10/2021 | DOI: 10.1111/jofi.13008
EDUARDO DÁVILA, CECILIA PARLATORE
We study the effect of trading costs on information aggregation and acquisition in financial markets. For a given precision of investors' private information, an irrelevance result emerges when investors are ex ante identical: price informativeness is independent of the level of trading costs. When investors are ex ante heterogeneous, a change in trading costs can increase or decrease price informativeness, depending on the source of heterogeneity. Our results are valid under quadratic, linear, and fixed costs. Through a reduction in information acquisition, trading costs reduce price informativeness. We discuss how our results inform the policy debate on financial transaction taxes/Tobin taxes.