Journal of Financial Services Research

, Volume 36, Issue 1, pp 65–83 | Cite as

Transaction Costs and Price Volatility: New Evidence from the Tokyo Stock Exchange



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.

JEL classification

G14 G15 G18 


Commission deregulation Transaction costs Price volatility Japan 


  1. Anonymous (1991a) Japan’s MOF readying measures to restore confidence in markets after scandals. Thomson’s International Banking Regulator, January 20, 1991, p. 6Google Scholar
  2. Anonymous (1991b) Caution urged for broker fee liberalization. Jiji Press Ticker Service, November 5, 1991Google Scholar
  3. Anonymous (1993) Brokers guarded on fee deregulation plan. Jiji Press Ticker Service, March 23, 1993Google Scholar
  4. Anonymous (1994) Brokerages to negotiate commissions for big investors. The Nikkei Weekly, March 28, 1994, Finance Section, p. 18Google Scholar
  5. Anonymous (1999) Japan’s stock commissions liberalized to lure small investors. Jji Press Ticker Service, October 1, 1999Google Scholar
  6. Anonymous (2000a) Online stockbrokers leading brokerage fee competition. Jiji Press Ticker Service, March 15, 2000Google Scholar
  7. Anonymous (2000b) Number of Internet stock traders rises rapidly. Japan Economic Newswire, October 16, 2000Google Scholar
  8. Anonymous (2001) Brokerage commissions still declining. The Nikkei Weekly, March 26, 2001Google Scholar
  9. Barberis N, Thaler R (2002) A survey of behavioral finance. In: Constantinides G, Harris M, Stulz R (eds) Handbook of the Economics of Finance. North-Holland, AmsterdamGoogle Scholar
  10. Black F (1986) Noise. J Finance 41:529–543. doi:10.2307/2328481 CrossRefGoogle Scholar
  11. Campbell J, Lettau M, Malkiel B, Xu Y (2001) Have individual stocks become more volatile? an empirical exploration of idiosyncratic risk. J Finance 46:1–43. doi:10.1111/0022-1082.00318 CrossRefGoogle Scholar
  12. Engle R, Lilien D, Robins R (1987) Estimating time varying risk premia in the term structure: the ARCH-M model. Econometrica 55:391–407. doi:10.2307/1913242 CrossRefGoogle Scholar
  13. Grundfest J, Shoven J (1991) Adverse implications of a securities transactions excise tax. J Account Audit Financ 6:409–442Google Scholar
  14. Hu S (1998) The effects of the stock transaction tax on the stock market—experiences from the Asian markets. Pac Basin Finance J 6:347–364. doi:10.1016/S0927-538X(98)00017-1 CrossRefGoogle Scholar
  15. Japan Securities Dealers Association (2003–2005) Fact bookGoogle Scholar
  16. Jones C, Seguin P (1997) Transaction costs and price volatility: evidence from commission deregulation. Am Econ Rev 87:728–737Google Scholar
  17. Karolyi A (2006) The world of cross-listings and cross-listings of the world: challenging conventional wisdom. Rev Finance 10:99–152. doi:10.1007/s10679-006-6980-8 CrossRefGoogle Scholar
  18. Kupiec P (1996) Noise traders, excess volatility, and a securities transaction tax. J Financ Serv Res 10:115–129. doi:10.1007/BF00115671 CrossRefGoogle Scholar
  19. Liu S (2008) Commission deregulation and performance of securities firms: further evidence from Japan. J Econ Bus 60:355–368. doi:10.1016/j.jeconbus.2007.03.005 CrossRefGoogle Scholar
  20. Ministry of Finance Japan (1987) Financial system reformGoogle Scholar
  21. Morck R, Yeung B, Yu W (2000) The information content of stock markets: why do emerging markets have synchronous stock price movements? J Financ Econ 58:215–260. doi:10.1016/S0304-405X(00)00071-4 CrossRefGoogle Scholar
  22. Naidu G, Rozeff M (1994) Volume, volatility, liquidity and efficiency of the Singapore stock exchange before and after automation. Pac Basin Finance J 2:23–42. doi:10.1016/0927-538X(94)90027-2 CrossRefGoogle Scholar
  23. Newey W, West K (1987) A simple positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix. Econometrica 55:703–708. doi:10.2307/1913610 CrossRefGoogle Scholar
  24. Roll R (1988) R2. J Finance 43:541–566. doi:10.2307/2328183 CrossRefGoogle Scholar
  25. Roll R (1989) Price volatility, international market links, and their implications for regulatory policies. J Financ Serv Res 3:211–246. doi:10.1007/BF00122803 CrossRefGoogle Scholar
  26. Shleifer A, Summers L (1990) The noise trader approach to finance. J Econ Perspect 4:19–33Google Scholar
  27. Schwert G (1989) Why does stock market volatility change over time? J Finance 44:1115–1153. doi:10.2307/2328636 CrossRefGoogle Scholar
  28. Schwert W, Seguin P (1990) Heteroscedasticity in stock returns. J Finance 45:1129–1155. doi:10.2307/2328718 CrossRefGoogle Scholar
  29. Stiglitz J (1989) Using tax policy to curb speculative short-term trading. J Financ Serv Res 3:101–115. doi:10.1007/BF00122795 CrossRefGoogle Scholar
  30. Summers L, Summers V (1989) When financial markets work too well: a cautious case for a securities transaction tax. J Financ Serv Res 3:261–286. doi:10.1007/BF00122806 CrossRefGoogle Scholar
  31. Tokyo Stock Exchange (2005) Fact bookGoogle Scholar
  32. Umlauf S (1993) Transaction taxes and the behavior of the Swedish stock market. J Financ Econ 33:227–240. doi:10.1016/0304-405X(93)90005-V CrossRefGoogle Scholar
  33. Yamamoto Y (1998) Big Bang rattles securities hierarchy: size no longer ensures profit lead as small firms top some bigger rivals, The Nikkei Weekly (April 27, 1998), p. 14Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.School of BusinessKentucky State UniversityFrankfortUSA
  2. 2.Department of EconomicsUniversity of Central OklahomaEdmondUSA

Personalised recommendations