TY  - JOUR
AU  - Bonaparte,Yosef
AU  - Cooper,Russell
TI  - Costly Portfolio Adjustment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15227
PY  - 2009
Y2  - August 2009
UR  - http://www.nber.org/papers/w15227
L1  - http://www.nber.org/papers/w15227.pdf
N1  - Author contact info:
Yosef Bonaparte
Claremont Graduate University
Claremont, CA 91711
E-Mail: bonaparte20@gmail.com

Russell Cooper
Department of Economics
The Pennsylvania State University
611 Kern
State College, PA 16802
E-Mail: russellcoop@gmail.com
AB  - This paper studies the dynamic optimization problem of a household when portfolio adjustment is costly. The analysis is motivated by the observation that on an annual basis, less than 71% of stockholders typically adjust their portfolio of common stocks. We use this, and related observations, to estimate the parameters of household preferences and portfolio adjustment costs. We find significant adjustment costs, beyond the direct costs of buying and selling assets. These adjustment costs and the consequent inactivity in portfolio adjustment imply that inferences drawn about household risk aversion and the elasticity of intertemporal substitution are biased: household risk aversion is lower compared to other estimates and it is not equal to the inverse of the elasticity of intertemporal substitution.
ER  -