|Researchers:||Grigory Vilkov, Kailin Zeng|
|Category:||Financial Markets, Systemic Risk Lab, Transparency Lab|
Topic and Objectives
The project studies the effect of proportional transaction costs on consumption-portfolio decisions and asset prices in a dynamic general equilibrium economy with multiple investors who have stochastic labor income and heterogeneous Epstein-Zin-Weil utility functions and a financial market with a single-period bond and two risky stocks, one of which incurs the transaction cost. The transaction cost gives rise to endogenous variations in liquidity.
- Costs for trading a stock lead to a substantial reduction in the trading volume of that stock, but have only a small effect on the trading volume of the other stock and the bond.
- Even in the presence of stochastic labor income, transaction costs have only a small effect on the consumption decisions of investors, and hence, on equity risk premia and the liquidity premium.
- The effects of transaction costs on quantities such as the liquidity premium depend on whether the analysis is undertaken in general equilibrium or in partial equilibrium.
|5||Grigory Vilkov, Yan Xiao||Option-Implied Information and Predictability of Extreme Returns||2013||Financial Markets, Systemic Risk Lab, Transparency Lab||extreme value theory, tail measure, implied correlation, variance risk premium, option-implied distribution, predictability, portfolio optimization|
|41||Adrian Buss, Raman Uppal, Grigory Vilkov||Asset Prices in General Equilibrium with Recursive Utility and Illiquidity Induced by Transactions Costs||2014||Financial Markets, Systemic Risk Lab, Transparency Lab||liquidity premium, incomplete markets, portfolio choice, heterogeneous agents|