Varsanyi, Zoltan (2009): When risk weights increase the risk: some concerns for capital regulation.
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In this chapter I argue that as a response to the introduction of capital requirements in the form of risk weights investors might potentially choose riskier portfolios than before the regulation – this is, presumably, not what the regulation intends to achieve. That is, while regulation most likely diverts investors from their optimum decision it does not guarantee that the new optimum has a lower risk. The effect of the regulation depends on several things, most importantly the correlation between individual investments, investor preferences and the relative size of risk weights.
|Item Type:||MPRA Paper|
|Original Title:||When risk weights increase the risk: some concerns for capital regulation|
|Keywords:||portfolio selection; regulation; Basel II; risk|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
|Depositing User:||Zoltan Varsanyi|
|Date Deposited:||23. Feb 2009 14:23|
|Last Modified:||20. Feb 2013 07:08|
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