The Dynamic Properties of Financial-Market Equilibrium with Trading Fees
NBER Working Paper No. 19155
We incorporate trading fees in a long-horizon dynamic general-equilibrium model in which traders optimally and endogenously decide when and how much to trade. A full characterization of equilibrium is provided, which allows us to study the dynamics of equilibrium trades, equilibrium asset prices and rates of return in the presence of trading fees. We exhibit the effect of trading fees on deviations from the consumption- CAPM and analyze the pricing of endogenous liquidity risk. We compare, for the same shocks, the impulse responses of this model to those of a model in which trading is infrequent because of trader inattention.
The current version reflects material that was previously in two papers, w21421 and w19155.
Document Object Identifier (DOI): 10.3386/w19155
Published: ADRIAN BUSS & BERNARD DUMAS, 2019. "The Dynamic Properties of Financial‐Market Equilibrium with Trading Fees," The Journal of Finance, vol 74(2), pages 795-844.
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