Should retail investors’ leverage be limited?
© 2018 Does the provision of leverage to retail traders improve market quality or facilitate socially inefficient speculation that enriches financial intermediaries? We evaluate the effects of 2010 regulations that cap leverage in the U.S. retail foreign exchange market. Using three unique data sets...
| Main Authors: | , |
|---|---|
| Other Authors: | |
| Format: | Article |
| Language: | English |
| Published: |
Elsevier BV
2021
|
| Online Access: | https://hdl.handle.net/1721.1/134174 |
| _version_ | 1826210956803309568 |
|---|---|
| author | Heimer, Rawley Simsek, Alp |
| author2 | Massachusetts Institute of Technology. Department of Economics |
| author_facet | Massachusetts Institute of Technology. Department of Economics Heimer, Rawley Simsek, Alp |
| author_sort | Heimer, Rawley |
| collection | MIT |
| description | © 2018 Does the provision of leverage to retail traders improve market quality or facilitate socially inefficient speculation that enriches financial intermediaries? We evaluate the effects of 2010 regulations that cap leverage in the U.S. retail foreign exchange market. Using three unique data sets and a difference-in-differences approach, we document that the leverage-constraint reduces trading volume by 23%, alleviates high-leverage traders’ losses by 40%, and reduces brokerages’ operating capital by 25%. Yet, the policy does not affect the relative bid-ask prices charged by the brokerages. These results suggest the policy improves belief-neutral social welfare without reducing market liquidity. |
| first_indexed | 2024-09-23T14:58:07Z |
| format | Article |
| id | mit-1721.1/134174 |
| institution | Massachusetts Institute of Technology |
| language | English |
| last_indexed | 2024-09-23T14:58:07Z |
| publishDate | 2021 |
| publisher | Elsevier BV |
| record_format | dspace |
| spelling | mit-1721.1/1341742024-01-02T18:32:59Z Should retail investors’ leverage be limited? Heimer, Rawley Simsek, Alp Massachusetts Institute of Technology. Department of Economics © 2018 Does the provision of leverage to retail traders improve market quality or facilitate socially inefficient speculation that enriches financial intermediaries? We evaluate the effects of 2010 regulations that cap leverage in the U.S. retail foreign exchange market. Using three unique data sets and a difference-in-differences approach, we document that the leverage-constraint reduces trading volume by 23%, alleviates high-leverage traders’ losses by 40%, and reduces brokerages’ operating capital by 25%. Yet, the policy does not affect the relative bid-ask prices charged by the brokerages. These results suggest the policy improves belief-neutral social welfare without reducing market liquidity. 2021-10-27T19:58:29Z 2021-10-27T19:58:29Z 2019 2019-10-23T15:33:37Z Article http://purl.org/eprint/type/JournalArticle https://hdl.handle.net/1721.1/134174 en 10.1016/J.JFINECO.2018.10.017 Journal of Financial Economics Creative Commons Attribution-NonCommercial-NoDerivs License http://creativecommons.org/licenses/by-nc-nd/4.0/ application/pdf Elsevier BV NBER |
| spellingShingle | Heimer, Rawley Simsek, Alp Should retail investors’ leverage be limited? |
| title | Should retail investors’ leverage be limited? |
| title_full | Should retail investors’ leverage be limited? |
| title_fullStr | Should retail investors’ leverage be limited? |
| title_full_unstemmed | Should retail investors’ leverage be limited? |
| title_short | Should retail investors’ leverage be limited? |
| title_sort | should retail investors leverage be limited |
| url | https://hdl.handle.net/1721.1/134174 |
| work_keys_str_mv | AT heimerrawley shouldretailinvestorsleveragebelimited AT simsekalp shouldretailinvestorsleveragebelimited |