Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)
Costs and Benefits of Speculation
(), Klaus Reiner Schenk-Hoppé
() and Dan Ladley
Abstract: We quantify the effects of financial regulation in an
equilibrium model with delegated portfolio management. Fund managers trade
stocks and bonds in an order-driven market, subject to transaction taxes
and constraints on short-selling and leverage. Results are obtained on the
equilibrium properties of portfolio choice, trading activity, market
quality and price dynamics under the different regulations. We find that
short- sale restrictions reduce short-term volatility and long swings in
asset prices, while transaction taxes do more harm than good.
Keywords: Financial regulation; portfolio management; market microstructure; (follow links to similar papers)
JEL-Codes: C63; D53; G18; (follow links to similar papers)
47 pages, October 31, 2012
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