Comparing Different Regulatory Measures to Control Stock Market Volatility: A General Equilibrium Analysis

In this paper, we compare the effects of different regulatory measures used to reduce excess volatility of stock-market returns, which is generated by investors trading on sentiment.

Author(s) :

Adrian Buss

INSEAD

Bernard Dumas

INSEAD, CEPR, and NBER

Raman Uppal

Edhec Business School, and CEPR

Grigory Vilkov

Goethe University Frankfurt

The regulatory measures we study are the Tobin tax, shortsale constraints, and leverage constraints. The main contribution of our research is to evaluate these regulatory measures within the same dynamic, stochastic general equilibrium model of a production economy, so that one can compare both the direct and indirect effects of the different measures on the financial and real sectors within the same economic setting. We find that of the three measures we consider, only the leverage constraint is effective in reducing stock-market volatility, and this is accompanied by positive effects on the real sector: an increase in the levels of consumption growth and investment growth, and a decrease in their volatilities. In contrast, both the Tobin tax and shortsale constraints increase volatility in financial markets, and have negative effects on the real sector: a decrease in the growth rates of output and investment and an increase in the volatility of consumption-growth.

Pdf
Comparing Different Regulatory Measures to Control Stock Market Volatility: A Ge...
(-1.00 B)
Type : Working paper
Date : le 03/02/2014
Extra information :

For more information, please contact EDHEC Research and Development Department [ research@drd.edhec.edu ]

Research Cluster : Finance

See Also

Actualités
- 10-12-2017
    A very high-level programme offering unique learning experiences Four partners at the forefront of innovation in their fields of expertise   Press Release   Lille...
FT European Business School rankings 2017: EDHEC cements its position among the top 15
Actualités
- 04-12-2017
EDHEC Business School has consolidated its standing among the top 15 business schools...
QS Ranking 2018: EDHEC Global MBA among best programmes in Europe and worldwide
Actualités
- 28-11-2017
EDHEC Global MBA ranked as the 15th MBA in Europe and 29th MBA in the world : the...
Dean of Sungkyunkwan Graduate School of Business visits EDHEC Business School
Actualités
- 27-11-2017
Dean of SKK GSB visits EDHEC Business School in the framework of strategic agreement...