Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129060
Authors: 
Buss, Adrian
Dumas, Bernard
Uppal, Raman
Vilkov, Grigory
Year of Publication: 
2016
Series/Report no.: 
SAFE Working Paper Series 124
Abstract: 
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.
Subjects: 
Tobin tax
borrowing constraints
short-sale constraints
stock market volatility
incomplete markets
differences of opinion
JEL: 
G01
G18
G12
E44
Document Type: 
Working Paper

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