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The present study contributes to the ongoing debate on possible costs and benefis of leverage requirements. In particular, we run two series of electronic call auctions with heterogeneous agents in the laboratory where we change the leverage bounds as a treatment variable. Over the two treatments, participants in our experiment realise about forty percent of the possible gains from trade. We show, in accordance the theory, leverage bounds do affect the efficiency of the market and the price of the asset.

The present study contributes to the ongoing debate on possible costs and benefis of leverage requirements. In particular, we run two series of electronic call auctions with heterogeneous agents in the laboratory where we change the leverage bounds as a treatment variable. Over the two treatments, participants in our experiment realise about forty percent of the possible gains from trade. We show, in accordance the theory, leverage bounds do affect the efficiency of the market and the price of the asset. The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.