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Costs and Benefits of Speculation

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  • Lensberg, Terje

    ()
    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Schenk-Hoppé, Klaus Reiner

    ()
    (Leeds University Business School and School of Mathematics, University of Leeds, and Dept. of Finance and Management Science, NHH Norwegian School of Economics)

  • Ladley, Dan

    ()
    (Dept. of Economics, University of Leicester)

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 short- sale restrictions reduce short-term volatility and long swings in asset prices, while transaction taxes do more harm than good.

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Bibliographic Info

Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2012/12.

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Length: 47 pages
Date of creation: 31 Oct 2012
Date of revision:
Handle: RePEc:hhs:nhhfms:2012_012

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Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
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Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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Keywords: Financial regulation; portfolio management; market microstructure;

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