Intensive margin of the Volcker rule: Price quality and welfare

Sakai Ando and Misaki Matsumura

Journal of Financial Intermediation, 2020, vol. 43, issue C

Abstract: We analyze the impact of dealer regulation on price quality (informativeness and volatility) and its implications for the welfare of market participants. We argue that although price informativeness, volatility, and the dealer’s profitability all deteriorate, against conventional wisdom, other market participants are better off due to the dealer’s risk-shifting motive. A static model is used to clarify the main intuition, and the robustness of the welfare results, as well as the fragility of the conventional wisdom about price quality, are discussed by incorporating dynamics and endogenizing information acquisition.

Keywords: Dealer; Financial regulation; Heterogeneous information; Volcker rule (search for similar items in EconPapers)
JEL-codes: E44 G14 G28 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:43:y:2020:i:c:s1042957319300166

DOI: 10.1016/j.jfi.2019.03.002

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