Trade Dynamics and Price Fluctuations in Financial Markets and the Stabilisation Potential of a Financial Transaction Tax

Over the past 20 years, the discrepancy between financial transactions and activities in the real economy has widened. At the same time, the instability of exchange rates, commodity prices and share prices has increased: In 2007 the volume of financial transactions was 73.5 times higher than global nominal GDP. Since 1990, it has expanded almost 5 times faster than the global economy.This expansion is driven by derivative markets, in particular futures and options trading on exchanges. In 2007, its volume was 43.4 times higher than global GDP. The hike in such transactions was steepest in Germany: in 2007, they were already 52.6 times higher than GDP. Exchange rates, commodity prices and share prices fluctuate in a sequence of medium-term trends ("bulls and bears"). These trends result from an accumulation of short-term runs, whose durations differ according to their directions: upward runs in a bullish market persist longer than downward runs.