Since 2014
Fixed Costs and Asset Market Participation
Economic Analysis Review
View Archive Info| Field | Value | |
| Title |
Fixed Costs and Asset Market Participation
Fixed Costs and Asset Market Participation |
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| Creator |
Yaron, Amir
Zhang, Harold H. |
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| Description |
This paper investigates the effects of fixed costs on investor's decision of asset market participation. The model features a continuum of agents with heterogeneous initial wealth and attitude toward risk. We show that under certain conditions there exists a unique competitive equilibrium in which investors optimally choose to stay in autarky, participate just in the riskless asset market or in both the riskless and the risky asset markets. The model is calibrated based on earnings profile from the U.S. We find that using fixed costs that are comparable to the current commission charged by brokers the model can generate participation patterns similar to observed ones. Further, we find participation rates to be very sensitive to the costs differentials associated with entering the risky asset market while relatively less sensitive to the overall levels of fixed costs. Finally, we find that costs make it even harder for dynamic models to replicate the risk free rate and in that sense deepen that puzzle.
This paper investigates the effects of fixed costs on investor's decision of asset market participation. The model features a continuum of agents with heterogeneous initial wealth and attitude toward risk. We show that under certain conditions there exists a unique competitive equilibrium in which investors optimally choose to stay in autarky, participate just in the riskless asset market or in both the riskless and the risky asset markets. The model is calibrated based on earnings profile from the U.S. We find that using fixed costs that are comparable to the current commission charged by brokers the model can generate participation patterns similar to observed ones. Further, we find participation rates to be very sensitive to the costs differentials associated with entering the risky asset market while relatively less sensitive to the overall levels of fixed costs. Finally, we find that costs make it even harder for dynamic models to replicate the risk free rate and in that sense deepen that puzzle. |
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| Publisher |
Universidad Alberto Hurtado - Facultad de Economía y Negocios
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| Contributor |
—
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| Date |
2010-03-05
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| Type |
info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion — — |
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| Format |
application/pdf
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| Identifier |
http://www.rae-ear.org/index.php/rae/article/view/99
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| Source |
Revista de Análisis Económico - Economic Analysis Review; Vol 15, No 1 (2000); 89-109
Revista de Análisis Económico – Economic Analysis Review; Vol 15, No 1 (2000); 89-109 0718-8870 0716-5927 |
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| Language |
eng
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| Relation |
http://www.rae-ear.org/index.php/rae/article/view/99/190
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