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Capital Market Equilibrium with Transaction Costs
Abstract
A two-asset, intertemporal portfolio selection model is formulated incorporating proportional transaction costs. The demand for assets is shown to be sensitive to these costs. However, transaction costs have only a second-order effect on the liquidity premia implied by equilibrium asset returns: the derived utility is insensitive to deviations from the optimal portfolio proportions, and investors accommodate large transaction costs by drastically reducing the frequency and volume of trade. A single-period model with an appropriately chosen length of period does not imply the same liquidity premium as the intertemporal model because the appropriate length of the time period is asset specific.
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Cited by
… and the Cross-Section of Expected Returns
Harvey, C. R., Liu, Y., & Zhu, H. (2016) · Review of Financial Studies · doi:10.1093/rfs/hhv059 · Cited by 2,119
Mandatory CSR and sustainability reporting: economic analysis and literature review
Christensen, H. B., Hail, L., & Leuz, C. (2021) · Review of Accounting Studies · doi:10.1007/s11142-021-09609-5 · Cited by 1,923
“…the adverse selection problem and level the playing field among investors (Verrecchia 2001), which in turn should increase the liquidity of secondary securities markets and lower the return that investors require for investing in firm stock (e.g., Constantinides 1986; Amihud and Mendelson 1986).”
BackgroundLEUZ, C., & WYSOCKI, P. D. (2016) · Journal of Accounting Research · doi:10.1111/1475-679x.12115 · Cited by 1,760
Economic Analysis of Widespread Adoption of CSR and Sustainability Reporting Standards
Christensen, H. B., Hail, L., & Leuz, C. (2018) · SSRN Electronic Journal · doi:10.2139/ssrn.3315673 · Cited by 67
Metadata
- Authors
- Constantinides, G. M.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 1986-08
- Volume
- 94
- Issue
- 4
- Pages
- 842-862
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W2074524292
- Cited by
- 1,095
- References
- 0
- FWCI
- 11.62
- Type
- journal article
- Language
- en
- Open access
- closed
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