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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SAFE Working Paper ; No. 124

Classification and Topics

• Classification: Wirtschaft ; Financial Crises ; General Financial Markets: Government Policy and Regulation ; Asset Pricing; Trading Volume; Bond Interest Rates ; Financial Markets and the Macroeconomy
• Subject: Tobin tax ; borrowing constraints ; short-sale constraints ; stock market volatility ; incomplete markets ; differences of opinion

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Buss, Adrian ; Dumas, Bernard ; Uppal, Raman ; Vilkov, Grigory
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe
• (where): Frankfurt a. M.
• (when): 2016

Further information

• DOI: doi:10.2139/ssrn.2870525
• Handle: http://hdl.handle.net/10419/129060
• URN: urn:nbn:de:hebis:30:3-393016
• Last update: 10.03.2025, 11:45 AM CET