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Costs and benefits of financial regulation: Short-selling bans and transaction taxes

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  • Lensberg, Terje
  • Schenk-Hoppé, Klaus Reiner
  • Ladley, Dan

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.

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  • Lensberg, Terje & Schenk-Hoppé, Klaus Reiner & Ladley, Dan, 2015. "Costs and benefits of financial regulation: Short-selling bans and transaction taxes," Journal of Banking & Finance, Elsevier, vol. 51(C), pages 103-118.
    • Handle: RePEc:eee:jbfina:v:51:y:2015:i:c:p:103-118
    DOI: 10.1016/j.jbankfin.2014.10.014
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    6. MiloÈ™ Marius Cristian & MiloÈ™ Laura Raisa, 2018. "Short-Selling Regulation and the Development of the Stock Markets," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 470-475, July.
    7. Ye, Qing & Zhou, Shengjie & Zhang, Jie, 2020. "Short-selling, margin-trading, and stock liquidity: Evidence from the Chinese stock markets," International Review of Financial Analysis, Elsevier, vol. 71(C).
    8. Nathalie Oriol & Iryna Veryzhenko, 2019. "Market structure or traders' behavior? A multi agent model to assess flash crash phenomena and their regulation," Quantitative Finance, Taylor & Francis Journals, vol. 19(7), pages 1075-1092, July.
    9. Roberto Dieci & Xue-Zhong He, 2018. "Heterogeneous Agent Models in Finance," Research Paper Series 389, Quantitative Finance Research Centre, University of Technology, Sydney.
    10. Thomas Holtfort, 2019. "From standard to evolutionary finance: a literature survey," Management Review Quarterly, Springer, vol. 69(2), pages 207-232, June.
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    More about this item

    Keywords

    Financial regulation; Portfolio management; Market microstructure;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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