Speculative Investors and Transactions Tax : Evidence from the Housing Market

This paper examines the impact of a policy change in transaction tax on speculators. The policy intervention took place in Singapore' housing market; it effectively raised the transaction cost in a segment favored by short-term speculators. Relative to the unaffected control sample, we find that the rise in transaction cost substantially reduced speculative trading in the treatment segment, significantly raised its price volatility and reduced price informativeness. We further show that the results are likely due to a relatively greater withdrawal by informed speculators than by destabilizing speculators following the transaction cost increase