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Intensive margin of the Volcker rule: Price quality and welfare

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  • Ando, Sakai
  • Matsumura, Misaki

Abstract

We analyze the impact of dealer regulation on price quality (informativeness and volatility) and its implications for the welfare of market participants. We argue that although price informativeness, volatility, and the dealer’s profitability all deteriorate, against conventional wisdom, other market participants are better off due to the dealer’s risk-shifting motive. A static model is used to clarify the main intuition, and the robustness of the welfare results, as well as the fragility of the conventional wisdom about price quality, are discussed by incorporating dynamics and endogenizing information acquisition.

Suggested Citation

  • Ando, Sakai & Matsumura, Misaki, 2020. "Intensive margin of the Volcker rule: Price quality and welfare," Journal of Financial Intermediation, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:jfinin:v:43:y:2020:i:c:s1042957319300166
    DOI: 10.1016/j.jfi.2019.03.002
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    References listed on IDEAS

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    More about this item

    Keywords

    Dealer; Financial regulation; Heterogeneous information; Volcker rule;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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