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Impact Analysis of Financial Regulation on Multi Assets Markets using Artificial Market Simulations

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

Journal of Risk and Financial Management, MDPI, vol.13, no.4, e75, 2020


In this study, we assessed the impact of capital adequacy ratio (CAR) regulation in the Basel regulatory framework. This regulation was established to make the banking network robust. However, a previous work argued that CAR regulation has a destabilization effect on financial markets. To assess impacts such as destabilizing effects, we conducted simulations of an artificial market, one of the computer simulations imitating real financial markets. In the simulation, we proposed and used a new model with continuous double auction markets, stylized trading agents, and two kinds of portfolio trading agents. Both portfolio trading agents had trading strategies incorporating Markowitz’s portfolio optimization. Additionally, one type of portfolio trading agent was under regulation. From the simulations, we found that portfolio optimization as each trader’s strategy stabilizes markets, and CAR regulation destabilizes markets in various aspects. These results show that CAR regulation can have negative effects on asset markets. As future work, we should confirm these effects empirically and consider how to balance between both positive and negative aspects of CAR regulation.


artificial market; simulation; CAR regulation; portfolio;




  title={{Impact Analysis of Financial Regulation on Multi Assets Markets using Artificial Market Simulations}},
  author={Masanori HIRANO and Kiyoshi IZUMI and Takashi SHIMADA and Hiroyasu MATSUSHIMA and Hiroki SAKAJI},
  journal={Journal of Risk and Financial Management},