Advances in Practical Multi-Agent Systems

Volume 325 of the series Studies in Computational Intelligence pp 217-231

A Study on the Market Impact of Short-Selling Regulation Using Artificial Markets

  • Isao YagiAffiliated withInterdisciplinary Graduate School of Science and Engineering, Tokyo Institute of Technology
  • , Takanobu MizutaAffiliated withSPARX Asset Management Co., Ltd., Gate City Ohsaki
  • , Kiyoshi IzumiAffiliated withDigital Human Research Center, National Institute of Advanced Industrial Science and Technology

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Since the subprime mortgage crisis in the United Sates, stock markets around the world have crashed, revealing their instability. To stem the decline in stock prices, short-selling regulations have been implemented in many markets. However, their effectiveness remains unclear. In this paper, we discuss the effectiveness of short-selling regulation using artificial markets. An artificial market is an agent-based model of financial markets. We constructed an artificial market that allows short-selling and an artificial market with short-selling regulation and have observed the stock prices in both of these markets. We found that the market in which short-selling was allowed was more stable than the market with short-selling regulation, and a bubble emerged in the regulated market. We evaluated the values of assets of agents who used three trading strategies, specifically, these agents were fundamentalists, chartists, and noise traders. The fundamentalists had the best performance among the three types of agents. Finally, we observe the price variations when the market price affects the theoretical price.