TY  - JOUR
AU  - Lo,Andrew W.
AU  - Mamaysky,Harry
AU  - Wang,Jiang
TI  - Asset Prices and Trading Volume Under Fixed Transactions Costs
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8311
PY  - 2001
Y2  - May 2001
UR  - http://www.nber.org/papers/w8311
L1  - http://www.nber.org/papers/w8311.pdf
N1  - Author contact info:
Andrew W. Lo
MIT Sloan School of Management
100 Main Street, E62-618
Cambridge, MA  02142
Tel: 617/253-0920
Fax: 781/891-9783
E-Mail: alo@mit.edu

Harry Mamaysky
Citigroup
Citi Principal Strategies
390 Greenwich St., Floor 7
New York, NY   10013
Tel: 917-514-0845
Fax: 646-224-5619
E-Mail: harry.mamaysky@citi.com

Jiang Wang
MIT Sloan School of Management
100 Main Street, E62-614
Cambridge, MA 02142
Tel: 617/253-2632
Fax: 617/258-6855
E-Mail: wangj@mit.edu
AB  - We propose a dynamic equilibrium model of asset prices and trading volume with heterogeneous agents facing fixed transactions costs.  We show that even small fixed costs can give rise to large 'no-trade' regions for each agent's optimal trading policy and a significant illiquidity discount in asset prices. We perform a calibration exercise to illustrate the empirical relevance of our model for aggregate data.  Our model also has implications for the dynamics of order flow, bid/ask spreads, market depth, the allocation of trading costs between buyers and sellers, and other aspects of market microstructure, including a square-root power law between trading volume and fixed costs which we confirm using historical US stock market data from 1993 to 1997.
ER  -