  Do we know if a short selling ban or a Tobin Tax result in more stable asset
prices? Or do they in fact make things worse? Just like medicine regulatory
measures in financial markets aim at improving an already complex system. And
just like medicine these interventions can cause side effects which are even
harder to assess when taking the interplay with other measures into account. In
this paper an agent based stock market model is built that tries to find
answers to the questions above. In a stepwise procedure regulatory measures are
introduced and their implications on market liquidity and stability examined.
Particularly, the effects of (i) a ban of short selling (ii) a mandatory risk
limit, i.e. a Value-at-Risk limit, (iii) an introduction of a Tobin Tax, i.e.
transaction tax on trading, and (iv) any arbitrary combination of the measures
are observed and discussed. The model is set up to incorporate non-linear
feedback effects of leverage and liquidity constraints leading to fire sales
and escape dynamics. In its unregulated version the model outcome is capable of
reproducing stylised facts of asset returns like fat tails and clustered
volatility. Introducing regulatory measures shows that only a mandatory risk
limit is beneficial from every perspective, while a short selling ban - though
reducing volatility - increases tail risk. The contrary holds true for a Tobin
Tax: it reduces the occurrence of crashes but increases volatility.
Furthermore, the interplay of measures is not negligible: measures block each
other and a well chosen combination can mitigate unforeseen side effects.
Concerning the Tobin Tax the findings indicate that an overdose can do severe
harm.
