Economics, Econometrics and Finance
3 years ago

Restrictions on trading could boost market welfare, new study finds.

SSRN Electronic Journal
Price Impact Under Heterogeneous Beliefs and Restricted Participation
Michail Anthropelos, Constantinos Kardaras

Paper Summary

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The article explores how different beliefs and trading restrictions affect financial markets. Traders have varying opinions and risk preferences, and the market is thin, meaning trades can impact prices. The researchers found that in this scenario, restrictions on trading can actually improve market welfare if traders disagree on the risk of securities. They developed a method to calculate equilibrium prices and allocations in this complex market environment.