The intended and unintended consequences of financial-market regulations: A general equilibrium analysis

Adrian Buss, Bernard Dumas (), Raman Uppal and Grigory Vilkov

No 124, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: In a production economy with trade in financial markets motivated by the desire to share labor-income risk and to speculate, we show that speculation increases volatility of asset returns and investment growth, increases the equity risk premium, and reduces welfare. Regulatory measures, such as constraints on stock positions, borrowing constraints, and the Tobin tax have similar effects on financial and macroeconomic variables. Borrowing limits and a financial transaction tax improve welfare because they substantially reduce speculative trading without impairing excessively risk-sharing trades.

Keywords: Tobin tax; borrowing constraints; short-sale constraints; stock market volatility; incomplete markets; differences of opinion (search for similar items in EconPapers)
JEL-codes: E44 G01 G12 G18 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Related works:
Journal Article: The intended and unintended consequences of financial-market regulations: A general-equilibrium analysis (2016)
Working Paper: The Intended and Unintended Consequences of Financial-Market Regulations: A General Equilibrium Analysis (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:124

DOI: 10.2139/ssrn.2870525

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