Costs and benefits of speculation
Working paper

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Date
2012-10Metadata
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- Discussion papers (FOR) [582]
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.