Speculative Investors and Transactions Tax: Evidence from the Housing Market

This paper examines the impact of rising transaction tax on trade volume, price volatility and informativeness. We take advantage of a policy change in Singapore that effectively raised the transaction cost for real estate speculators in only one submarket. Based on a difference-indifferences analysis, we find that the policy change significantly reduced speculative trading activities in the treatment sample, raised its price volatility and reduced the price informativeness compared to the unaffected control sample. We further show that these findings are consistent with a relatively greater withdrawal by informed speculators than by destabilizing speculators after the transaction cost increase.