Leverage regulation: An agent-based simulation
AbstractAn agent-based financial market model is used to simulate the effects of financial regulation to reduce financial leverage. Results suggest that regulating leverage using margin calls can lead to less frequent financial crises per century, however, it creates harder hit financial crises than without regulation. In addition, regulation where the central authority tries to prick bubbles also leads to less frequent financial crises, but, creates greater volatility. Lastly, I find that leverage regulation where agent's ability to borrow is not dependent on price produces less frequent crises and less volatility than the other regimes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economics and Business.
Volume (Year): 63 (2011)
Issue (Month): 5 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jeconbus
Agent-based models Financial regulation Financial crises;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brock, William A. & Hommes, Cars H., 1998.
"Heterogeneous beliefs and routes to chaos in a simple asset pricing model,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 22(8-9), pages 1235-1274, August.
- William Brock & Cars Hommes & Florian Wagener, 2006.
"More Hedging Instruments may destablize Markets,"
Tinbergen Institute Discussion Papers
06-080/1, Tinbergen Institute, revised 30 Apr 2008.
- Florian Wagener & Cars Hommes & William Brock, 2006. "More hedging instruments may destabilize markets," Working Papers wp06-11, Warwick Business School, Financial Econometrics Research Centre.
- Brock, W.A. & Hommes, C.H. & Wagener, F.O.O., 2006. "More hedging instruments may destabilize markets," CeNDEF Working Papers 06-12, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Westerhoff, Frank H., 2004.
"Multiasset Market Dynamics,"
Cambridge University Press, vol. 8(05), pages 596-616, November.
- Erika Corona & Sabrina Ecca & Michele Marchesi & Alessio Setzu, 2008. "The Interplay Between Two Stock Markets and a Related Foreign Exchange Market: A Simulation Approach," Computational Economics, Society for Computational Economics, vol. 32(1), pages 99-119, September.
- repec:att:wimass:9530 is not listed on IDEAS
- Lucy F. Ackert & Narat Charupat & Bryan K. Church & Richard Deaves, 2006. "Margin, Short Selling, And Lotteries In Experimental Asset Markets," Southern Economic Journal, Southern Economic Association, vol. 73(2), pages 419â436, October.
- Chiarella, Carl & Dieci, Roberto & He, Xue-Zhong, 2007.
"Heterogeneous expectations and speculative behavior in a dynamic multi-asset framework,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 62(3), pages 408-427, March.
- Carl Chiarella & Roberto Dieci & Xue-Zhong He, 2005. "Heterogeneous Expectations and Speculative Behaviour in a Dynamic Multi-Asset Framework," Research Paper Series 166, Quantitative Finance Research Centre, University of Technology, Sydney.
- Terrence Hendershott & Charles M. Jones, 2005. "Island Goes Dark: Transparency, Fragmentation, and Regulation," Review of Financial Studies, Society for Financial Studies, vol. 18(3), pages 743-793.
- William A. Brock & Cars H. Hommes, 1997.
"A Rational Route to Randomness,"
Econometric Society, vol. 65(5), pages 1059-1096, September.
- John Geanakoplos & Ana Fostel, 2008. "Leverage Cycles and the Anxious Economy," American Economic Review, American Economic Association, vol. 98(4), pages 1211-44, September.
- Friedman, Daniel & Abraham, Ralph, 2009. "Bubbles and crashes: Gradient dynamics in financial markets," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 922-937, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If references are entirely missing, you can add them using this form.