Journal
JOURNAL OF BANKING & FINANCE
Volume 51, Issue -, Pages 103-118Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.jbankfin.2014.10.014
Keywords
Financial regulation; Portfolio management; Market microstructure
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Funding
- European Commission under the Marie Curie Intra-European Fellowship Programme [PIEF-GA-2010-274454]
- Swiss National Center of Competence in Research 'Financial Valuation and Risk Management' (NCCR FINRISK)
- Norwegian Metacenter for Computational Science (NOTUR)
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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 these measures are neither as beneficial as some politicians believe nor as damaging as many practitioners fear. (C) 2014 The Authors. Published by Elsevier B.V.
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