NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Sinan Tan

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Working Papers and Chapters

December 2004Labor Income Dynamics at Business-Cycle Frequencies: Implications for Portfolio Choice
with Anthony W. Lynch: w11010
A large recent literature has focused on multiperiod portfolio choice with labor income, and while the models are elaborate along several dimensions, they all assume that the joint distribution of shocks to labor income and asset returns is i.i.d.. Calibrating this joint distribution to U.S. data, these papers obtain three results not found empirically for U.S. households: young agents choose a higher stock allocation than old agents; young agents choose a higher stock allocation when poor than when rich; and, young agents always hold some stock. This paper asks whether allowing the conditional joint distribution to depend on the business cycle can allow the model to generate equity holdings that better match those of U.S. households, while keeping the unconditional distribution the same a...
Explaining the Magnitude of Liquidity Premia: The Roles of Return Predictability, Wealth Shocks and State-Dependent Transaction Costs
with Anthony W. Lynch: w10994
The seminal work of Constantinides (1986) documents how, when the risky return is calibrated to the U.S. market return, the impact of transaction costs on per-annum liquidity premia is an order of magnitude smaller than the cost rate itself. A number of recent papers have formed portfolios sorted on liquidity measures and found a spread in expected per-annum return that is definitely not an order of magnitude smaller than the transaction cost spread: the expected per-annum return spread is found to be around 6-7% per annum. Our paper bridges the gap between Constantinides' theoretical result and the empirical magnitude of the liquidity premium by examining dynamic portfolio choice with transaction costs in a variety of more elaborate settings that move the problem closer to the one solved ...

Contact and additional information for this authorAll papers and publicationsWorking Papers onlyWorking Papers with publication info

 
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