University of Colorado Denver
1475 Lawrence St.
Denver, CO 80202
Institutional Affiliation: University of Colorado Denver
NBER Working Papers and Publications
|May 2019||Rationalizing Trading Frequency and Returns: Maybe Trading is Good for You|
with Russell Cooper, Mengli Sha: w25838
Barber and Odean (2000) find that households who trade more have a lower net return than others and attribute this pattern to irrationality, particularly overconfidence. In contrast, we find that household financial choices generated from a dynamic optimization problem with rational agents and portfolio adjustment costs can reproduce the observed pattern of households with large turnover having lower net returns. Various forms of irrationality, modeled as beliefs about income and return processes that are not data based, do not improve the ability of the baseline model to explain these turnover and net returns patterns.
|April 2011||Consumption Smoothing and Portfolio Rebalancing: The Effects of Adjustment Costs|
with Russell Cooper, Guozhong Zhu: w16957
This paper studies the dynamics of portfolio rebalancing and consumption smoothing in the presence of non-convex portfolio adjustment costs. The goal is to understand a household's response to income and return shocks. The model includes the choice of two assets: one riskless without adjustment costs and a second risky asset with adjustment costs. With these multiple assets, a household can buffer some income fluctuations through the asset without adjustment costs and engage in costly portfolio rebalancing less frequently. We estimate both preference parameters and portfolio adjustment costs. The estimates are used for evaluating consumption smoothing and portfolio adjustment in the face of income and return shocks.
Published: Bonaparte, Yosef & Cooper, Russell & Zhu, Guozhong, 2012. "Consumption smoothing and portfolio rebalancing: The effects of adjustment costs," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 751-768. citation courtesy of
|May 2010||Rationalizing Trading Frequency and Returns|
with Russell Cooper: w16022
Barber and Odean (2000) study the relationship between trading frequency andreturns. They find that households who trade more frequently have a lower net return than other households. But all households have about the same gross return. They argue that these results cannot emerge from a model with rational traders and instead attribute these findings to overconfidence. Using a dynamic optimization approach, we find that neither a model with rational agents facing adjustment costs nor various models of overconfidence fit these facts.
|August 2009||Costly Portfolio Adjustment|
with Russell Cooper: w15227
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 sub...