Costs and Benefits of Speculation

Terje Lensberg, Klaus Schenk-Hoppé and Daniel Ladley ()

No 2012/12, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

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.

Keywords: Financial regulation; portfolio management; market microstructure (search for similar items in EconPapers)
JEL-codes: C63 D53 G18 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2012-10-31
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Citations: View citations in EconPapers (1)

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