Capital Market Equilibrium with Transaction Costs

Bibliographic Data

ID10173253
AuthorsGeorge M Constantinides (corresponding author)
Year1986
Volume94
Issue4
Pages842-862
Publication date1986-08-01
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueJournal of Political Economy (JOURNAL)
Journal identifiersISSN: 0022-3808 • E-ISSN: 1537-534X
PublisherUniversity of Chicago Press (PUBLISHER • US)
DOI10.1086/261410
OpenAlexW2074524292
LanguageEN
Citations received12

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

Asset (computer security · Capital asset pricing model · Consumption-based capital asset pricing model · Econometrics · Economics · Financial economics · General equilibrium theory · Liquidity premium · Liquidity risk · Market liquidity · Microeconomics · Monetary economics · Portfolio · Portfolio optimization · Replicating portfolio · Transaction cost · Complex Systems and Time Series Analysis · Computer Science · Economic theories and models · Financial Markets and Investment Strategies

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