Costs and Benefits of Speculation

Abstract

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 shortsale restrictions reduce short-term volatility and long swings in asset prices, while transaction taxes do more harm than good.

Chasing trends at the micro-level: The effect of technical trading on order book dynamics

“…Pellizzari (2011) uses an evolutionary approach to find optimal linear trading strategies for continuous double auctions. Lensberg et al (2012) evolve ecology's of portfolio management and order submission strategies using genetic programming in order to quantify the effects of short selling bans and transaction taxes in order book markets. traders who use momentum based rules.…”