A Study on the Effectiveness of Short-selling Regulation using Artificial Markets

Yagi, Isao; Mizuta, Takanobu; Izumi, Kiyoshi

doi:10.14441/eier.7.113

Cited by 23 publications

(11 citation statements)

References 7 publications

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“…(We confirmed that in Refs. [5] and [6], although the fluctuations are very large, they are reduced when the initial amount of cash is reduced, reaching a level similar to that of the present research.) For the uptick rule as well, the change is not so strong as in the presence of a blanket short selling ban, but trades always occur at a price greater than the fundamental value.…”

Section: Validity Of the Modelsupporting

confidence: 89%

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Investigation of Price Variation Limits, Short Selling Regulation, and Uptick Rules and Their Optimal Design by Artificial Market Simulations

Mizuta

Izumi

Yagi

et al. 2015

Elect Comm in Japan

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SUMMARY We built an artificial market model and compared the effects of price variation limits, short sell regulations, and uptick rules. When there were no regulations, the price fell below the fundamental value when economic bubble collapses occurred. When there were regulations, this overshoot did not occur and the market was more effective. However, the short sell regulations and uptick rules caused the trading prices to be higher than the base value. To summarize these points, the price variation limits have the potential to make the market more effective. We also surveyed an adequate limitation price range and an adequate limitation time span for the price variation limit and found conditions for the parameters for the price variation limit that prevent such overshoots.

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Section: Validity Of the Modelsupporting

confidence: 89%

“…This is consistent with the results in Refs. [5] and [6] from earlier simulation research. (We confirmed that in Refs.…”

Section: Validity Of the Modelmentioning

confidence: 99%

Investigation of Price Variation Limits, Short Selling Regulation, and Uptick Rules and Their Optimal Design by Artificial Market Simulations

Mizuta

Izumi

Yagi

et al. 2015

Elect Comm in Japan

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“…The results showed that though the breaker mechanism could lower the market fluctuation, it would also decrease the total trading volume. Yagi et al (2010) explored the influence on the market quality of the short selling restriction through artificial market; indicating that short selling system not only prevent the decline of the price but also cause the severe fluctuations of the stock price, thus lead to market instability. Wei et al (2014) and Xiong et al (2014) constructed and integrated a stock and futures financial simulation system, and explored the impacts on the stock index futures market through minimum bid unit and the number of the crosstime arbitragers respectively.…”

Section: Contribution Of This Paper To the Literaturementioning

confidence: 99%

Analysis of the Spot Market’s T+1 Trading System Effects on the Stock Index Futures Market

Xiong

Liu

Cui

et al. 2017

EURASIA J MATH SCI T

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T+0 trading system, or day trading system, which allows the investors to buy and sell shares in one day, is a universal trading system in international markets. By contrast, T+1 trading system, which is implemented in China's stock market, allows investors to sell shares which are bought today only on the next day. T+1 trading system in spot market is a Chinese problem left over by history, and a characteristic in Chinese market. Stock index futures, the financial derivatives based on the stock, are the products of the development of the capital market at certain stage. For the stock index futures are generated based on the stock, they must be closely related. On that basis, what's the impact of the Chinese special T+1 trading system in spot market on the pricing efficiency, market liquidity and market volatility of the stock index futures market? The paper adopted the method based on the agent-based computational finance which's different from the traditional method, and built the agent-based computational crossmarket platform which includes both several stocks and stock index futures based on MASON. The paper simulated the experiment on the platform to look out the effect on the market quality of the stock index futures market when T+1 trading system in spot market turned into T+0 trading system, consisting mainly of the efficiency of price discovery, market liquidity, market volatility and arbitrage investors' order submission behavior. The results showed that, compared with the T+1 trading system in spot market, T+0 trading system improved the efficiency of price discovery and market liquidity of stock index futures market, did not raise market volatility, enhance the enthusiasm of arbitrage investors' order submission behavior. From the perspective of the stock index futures market, we believe that we should restore the T+0 trading system in stock market timely, so as to active the market and improve the efficiency of market information diffusion, to promote the steady and sound environment of the stock index futures market.

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“…Yagi, Mizuta, and Izumi (, ) investigated the effects of short‐selling regulations and showed that they induce bubbles. Westerhoff () discussed the effectiveness of transaction taxes, central bank interventions and trading halts.…”

Section: Introductionmentioning

confidence: 99%

Effects of Price Regulations and Dark Pools on Financial Market Stability: An Investigation by Multiagent Simulations

Mizuta

Kosugi

Kusumoto

et al. 2015

Intell. Sys. Acc. Fin. Mgmt.

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SUMMARYWe built an artificial market model and investigated the impact of large erroneous orders on financial market price formations. Comparing the case of consented large erroneous orders in the short term with that of continuous small erroneous orders in the long term, if amounts of orders are the same, we found that the orders induced almost the same price fall range. We also analysed effects of price variation limits for erroneous orders and found that price variation limits that employ a limitation term shorter than the time erroneous orders exist effectively prevent large price fluctuations. We also investigated effects of up-tick rules, adopting the trigger method that the Japan Financial Services Agency adopted in November 2013.We also investigated whether dark pools that never provide any order books stabilize markets or not using the model including one lit market, which provides all order books to investors, and one dark pool. We found that markets become more stable as the dark pool is increasingly used. We also found that using the dark pool more reduces the market impacts. However, if other investors' usage rates of dark pools become too large, investors must use the dark pool more than other investors to avoid market impacts. When a tick size of a lit market is larger, dark pools are more useful to avoid market impacts. These results suggest that dark pools stabilize markets when the usage rate is under some threshold and negatively affect the market when the usage rate is over that threshold. Our simulation results suggest the threshold might be much larger than the usage rate in present real financial markets.This study is the first to discuss whether or not several concrete and actually adoptable regulations, including those that have never been employed (e.g. price variation limits with various parameters), could prevent large fluctuations of market prices, including those beyond our experience, using artificial market simulations, and to discuss quantitatively how spreading of dark pools beyond our experience could affect market price formations using the artificial market simulations. In short, this study is the first study to comprehensively discuss how regulations and financial systems beyond our experience could affect price formations using the artificial market simulations.

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A Study on the Effectiveness of Short-selling Regulation using Artificial Markets

Cited by 23 publications

References 7 publications

Investigation of Price Variation Limits, Short Selling Regulation, and Uptick Rules and Their Optimal Design by Artificial Market Simulations

Investigation of Price Variation Limits, Short Selling Regulation, and Uptick Rules and Their Optimal Design by Artificial Market Simulations

Analysis of the Spot Market’s T+1 Trading System Effects on the Stock Index Futures Market

Effects of Price Regulations and Dark Pools on Financial Market Stability: An Investigation by Multiagent Simulations

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