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Impact Assessments of the CAR Regulation using Artificial Markets

Masanori HIRANO, Kiyoshi IZUMI, Hiroki SAKAJI, Takashi SHIMADA, Hiroyasu MATSUSHIMA

International Workshop on Artificial Market 2018, Oct. 30, 2018


Conference

International Workshop on Artificial Market 2018 (IWAM2018) in conjunction with The 21st International Conference on Principles and Practice of Multi-Agent Systems (PRIMA2018)

Abstract

In this study, we assessed the impact of capital adequacy ratio (CAR) regulation like that in the Basel regulatory framework. To asses impact such as destabilizing effects (eg, whether CAR regulation destabilizes markets or not), we conducted simulations of an artificial market, one of the computer simulations imitating real financial markets. And, we proposed a new model with continuous double auction markets, stylized trading agents and two kinds of portfolio agent. The portfolio agents had trading strategies incorporating Markowitz’s portfolio optimization. Additionally, the portfolio agents of one type were under regulation. From the simulations, we found that: 1. adopting portfolio optimization as each agent’s strategy stabilizes markets; 2. the existence of CAR regulation destabilizes markets; 3. CAR regulation can cause significant price shocks; 4. CAR regulation also can suppress price increases; 5. CAR regulation pushes down market prices. From these results, we conclude that CAR regulation can have negative effects on asset markets.

Keywords

Artificial market; CAR regulation; Portfolio;


Paper

Official page


bibtex

@inproceedings{Hirano2018-iwam,
  title={{Impact Assessments of the CAR Regulation using Artificial Markets}},
  autor={Masanori HIRANO and Kiyoshi IZUMI and Hiroki SAKAJI and Takashi SHIMADA and Hiroyasu MATSUSHIMA},
  booktitle={International Workshop on Artificial Market 2018},
  pages={43-58},
  url={http://www.u-mart.org/IWAM2018/CameraReady/IWAM2018_paper_2.pdf},
  year={2018}
}