ERIC Number: EJ696601
Record Type: Journal
Publication Date: 2004-Oct-1
Asset Prices and Trading Volume under Fixed Transactions Costs.
Lo, Andrew W.; Mamaysky, Harry; Wang, Jiang
Journal of Political Economy, v112 n5 p1054 Oct 2004
We propose a dynamic equilibrium model of asset prices and trading volume when agents face 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. The inability to trade more frequently reduces the agents' asset demand and in equilibrium gives rise to a significant illiquidity discount in asset prices.
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Publication Type: Journal Articles
Education Level: N/A
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