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Leverage regulation: An agent-based simulation

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  • Feldman, Todd

Abstract

An 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.

Suggested Citation

  • Feldman, Todd, 2011. "Leverage regulation: An agent-based simulation," Journal of Economics and Business, Elsevier, vol. 63(5), pages 431-440, September.
    • Handle: RePEc:eee:jebusi:v:63:y:2011:i:5:p:431-440
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    References listed on IDEAS

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    Cited by:

    1. Chenge Zhu & Guang Yang & Kenan An & Jiping Huang, 2014. "The Leverage Effect on Wealth Distribution in a Controllable Laboratory Stock Market," PLOS ONE, Public Library of Science, vol. 9(6), pages 1-10, June.

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