Costs and Benefits of Financial Regulation: Short-Selling Bans and Transaction Taxes
Norwegian School of Economics (NHH) - Department of Finance
Klaus Reiner Schenk-Hoppé
University of Manchester - Department of Economics; Norwegian School of Economics (NHH) - Department of Finance
University of Leicester - Department of Economics; University of Leicester - Institute of Finance
August 28, 2014
Swiss Finance Institute Research Paper No. 12-27
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 these measures are neither as beneficial as some politicians believe nor as damaging as many practitioners fear.
Number of Pages in PDF File: 57
Keywords: financial regulation, portfolio management, market microstructure
JEL Classification: D53, G18, C63
Date posted: August 14, 2012 ; Last revised: November 1, 2014
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