AbstractA deterministic trading strategy by a representative investor on a single market asset, which generates complex and realistic returns with its first four moments similar to the empirical values of European stock indices, is used to simulate the effects of financial regulation that either pricks bubbles, props up crashes, or both. The results suggest that regulation makes the market process appear more Gaussian and less complex, with the difference more pronounced for more frequent intervention, though particular periods can be worse than the non-regulated version, and that pricking bubbles and propping up crashes are not symmetrical.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1002.2281.
Date of creation: Feb 2010
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Publication status: Published in European Journal of Finance and Banking Research 2009, vol. 2, no. 2, 1-12
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-27 (All new papers)
- NEP-CMP-2010-02-27 (Computational Economics)
- NEP-FMK-2010-02-27 (Financial Markets)
- NEP-REG-2010-02-27 (Regulation)
- NEP-RMG-2010-02-27 (Risk Management)
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