The impact of short-selling constraints on financial market stability in a heterogeneous agents model

Anufriev, M; Tuinstra, J

The impact of short-selling constraints on financial market stability in a heterogeneous agents model

Anufriev, M

Tuinstra, J

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Publication Type:: Journal Article
Citation:: Journal of Economic Dynamics and Control, 2013, 37 (8), pp. 1523 - 1543
Issue Date:: 2013-08-01

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Field	Value	Language
dc.contributor.author	Anufriev, M https://orcid.org/0000-0002-1842-6814	en_US
dc.contributor.author	Tuinstra, J	en_US
dc.date.issued	2013-08-01	en_US
dc.identifier.citation	Journal of Economic Dynamics and Control, 2013, 37 (8), pp. 1523 - 1543	en_US
dc.identifier.issn	0165-1889	en_US
dc.identifier.uri	http://hdl.handle.net/10453/27722
dc.description.abstract	Recent turmoil on global financial markets has led to a discussion on which policy measures should or could be taken to stabilize financial markets. One such a measure that resurfaced is the imposition of short-selling constraints. It is conjectured that these short-selling constraints reduce speculative trading and thereby have the potential to stabilize volatile financial markets. The purpose of the current paper is to investigate this conjecture in a standard asset pricing model with heterogeneous beliefs. We model short-selling constraints by imposing trading costs for selling an asset short. We find that the local stability properties of the fundamental rational expectations equilibrium do not change when trading costs for short-selling are introduced. However, when the asset is overvalued, costs for short-selling increase mispricing and price volatility. © 2013 Elsevier B.V.	en_US
dc.relation.ispartof	Journal of Economic Dynamics and Control	en_US
dc.relation.isbasedon	10.1016/j.jedc.2013.04.015	en_US
dc.subject.classification	Economics	en_US
dc.title	The impact of short-selling constraints on financial market stability in a heterogeneous agents model	en_US
dc.type	Journal Article
utslib.citation.volume	8	en_US
utslib.citation.volume	37	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	1401 Economic Theory	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Economics Discipline
utslib.copyright.status	closed_access
pubs.issue	8	en_US
pubs.publication-status	Published	en_US
pubs.volume	37	en_US

Abstract:

Recent turmoil on global financial markets has led to a discussion on which policy measures should or could be taken to stabilize financial markets. One such a measure that resurfaced is the imposition of short-selling constraints. It is conjectured that these short-selling constraints reduce speculative trading and thereby have the potential to stabilize volatile financial markets. The purpose of the current paper is to investigate this conjecture in a standard asset pricing model with heterogeneous beliefs. We model short-selling constraints by imposing trading costs for selling an asset short. We find that the local stability properties of the fundamental rational expectations equilibrium do not change when trading costs for short-selling are introduced. However, when the asset is overvalued, costs for short-selling increase mispricing and price volatility. © 2013 Elsevier B.V.

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http://hdl.handle.net/10453/27722