Costs and Benefits of Speculation

descriptionPublicationkeyboard_double_arrow_right Article , Research , Preprint 01 Jan 2012 Norway English Publisher:Elsevier BVJournal:SSRN Electronic Journal (eissn: 1556-5068,

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Authors: Lensberg, Terje; Schenk-Hoppé, Klaus Reiner; Ladley, Dan;

doi: 10.2139/ssrn.2128599

handle: 11250/164189

Costs and Benefits of Speculation

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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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Norway

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Keywords

market microstructure, Financial regulation; portfolio management; market microstructure, portfolio management, financial regulation, VDP::Social science: 200::Economics: 210::Business: 213, jel: jel:C63, jel: jel:G18, jel: jel:D53

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