Speculative Investors and Tobin's Tax in the Housing Market

This paper examines the impact of a policy change in Tobin's tax on housing market speculators. The policy intervention effectively raised the transaction cost in the market segment with a high presence of speculators. Relative to the unaffected control sample, we find that the rise in transaction cost substantially reduced speculative trading activities in the treatment sample. However, it significantly raised its price volatility and reduced the price informativeness. We further show that the unintended consequences are likely due to a relatively greater withdrawal by informed speculators than by destabilizing speculators after the transaction cost increase.