Abstract
This paper studies the effect of the U.S. Securities and Exchange Commission´s R31 fees, a low-rate transaction tax, on large-capitalization U.S. stock trading. The SEC altered the fee rate 15 times between 2001 and 2010, creating a series of natural experiments with which to measure the effect of transaction costs on trading volume and volatility. The main finding is a negative relationship between the SEC fee and the price volatility of stocks in the S&P 500 index. As in most previous studies, a negative relationship is also found between the fee rate and trading volume. The SEC levy´s dampening effect on both trading volume and volatility is particularly strong for more heavily traded stocks within the S&P 500, and in the years after 2007, which witnessed the rise of high-frequency trading.
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