Costs and Benefits of Financial Regulation: Short-Selling Bans and Transaction Taxes
57 Pages Posted: 14 Aug 2012 Last revised: 1 Nov 2014
Date Written: August 28, 2014
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.
Keywords: financial regulation, portfolio management, market microstructure
JEL Classification: D53, G18, C63
Suggested Citation: Suggested Citation