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Costs and Benefits of Financial Regulation: Short-Selling Bans and Transaction TaxesTerje LensbergNorwegian School of Economics Klaus Reiner Schenk-HoppéUniversity of Leeds - Leeds University Business School; University of Leeds - School of Mathematics Dan LadleyUniversity of Leicester - Department of Economics; University of Leicester - Institute of Finance February 18, 2013 Swiss Finance Institute Research Paper No. 12-27 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 these measures are neither as beneficial as some politicians believe nor as damaging as many practitioners fear.
Number of Pages in PDF File: 56 Keywords: financial regulation, portfolio management, market microstructure JEL Classification: D53, G18, C63 working papers seriesDate posted: August 14, 2012 ; Last revised: March 8, 2013Suggested CitationContact Information
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