Hostname: page-component-cd9895bd7-dzt6s Total loading time: 0 Render date: 2024-12-25T07:28:27.315Z Has data issue: false hasContentIssue false
  • English
  • Français

The Asset Pricing Effects of Fixed Holding Costs: An Upper Bound

Published online by Cambridge University Press:  06 April 2009

Alan D. Viard
Alan D. Viard
Affiliation:
Department of Economics, Ohio State University, Columbus, OH 43210–1172.
Get access Rights & Permissions [Opens in a new window]

Abstract

The Capital Asset Pricing Model predicts that investors will hold diversified portfolios, but many households actually hold very few assets. The paper examines the asset pricing implications of one possible explanation for this phenomenon, fixed costs of holding assets. While earlier authors found the exact asset pricing effects of such costs in single-period models under restrictive assumptions, I derive a general upper bound on these effects that is also valid in continuous time. Illustrative calculations reveal that large holding costs must be postulated to generate significant asset pricing effects.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 30 , Issue 1 , March 1995 , pp. 43 - 59
Copyright
Copyright © School of Business Administration, University of Washington 1995

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Akerlof, G., and Yellen, J.. “Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?” American Economic Review, 75 (09 1985), 708–720.Google Scholar
Blume, M., and Friend, I.. “The Asset Structure of Individual Portfolios and Some Implications for Utility Functions.” Journal of Finance, 30 (05 1975), 585–603.CrossRefGoogle Scholar
Brennan, M. “The Optimal Number of Securities in a Risky Asset Portfolio when There are Fixed Costs of Transacting: Theory and Some Empirical Results.” Journal of Financial and Quantitative Analysis, 10 (09 1975), 483–496.CrossRefGoogle Scholar
Constantinides, G. “Capital Market Equilibrium with Transaction Costs.” Journal of Political Economy, 94 (08 1986), 842–862.CrossRefGoogle Scholar
Cox, J.; Ingersoll, J.; and Ross, S.. “An Intertemporal Asset Pricing Model with Rational Expectations.” Econometrica, 53 (03 1985), 363–384.CrossRefGoogle Scholar
Goldsmith, D. “Transaction Costs and theTheory of Portfolio Selection.” Journal of Finance, 31 (09 1976), 1127–1139.CrossRefGoogle Scholar
Gross, E. “Individual Income Tax Returns, Preliminary Data, 1991.” Statistics of Income Bulletin, 12 (Spring 1993), 6–22.Google Scholar
Ingersoll, J.Theory of Financial Decisionmaking. Totowa, NJ: Rowman & Littlefield (1987).Google Scholar
King, M., and Leape, J.. “Wealth and Portfolio Composition: Theory and Evidence.” National Bureau of Economic Research Working Paper 1468 (09 1984).CrossRefGoogle Scholar
Leape, J. “Taxes and Transaction Costs in Asset Market Equilibrium.” Journal of Public Economics, 33 (06 1987), 1–20.CrossRefGoogle Scholar
Levy, H. “Equilibrium in an Imperfect Market: A Constraint on the Number of Securities in a Portfolio.” American Economic Review, 68 (09 1978), 643–658.Google Scholar
Lucas, R. “Asset Prices in an Exchange Economy.” Econometrica, 46 (11 1978), 1429–1445.CrossRefGoogle Scholar
Mankiw, N. G. “The Term Structure of Interest Rates Revisited.” Brookings Papers on Economic Activity, 1 (1986), 61–96.CrossRefGoogle Scholar
Mankiw, N. G., and Zeldes, S.. “The Consumption of Stockholders and Nonstockholders.” Journal of Financial Economics, 29 (03 1991), 97–112.CrossRefGoogle Scholar
Mayshar, J. “Transaction Costs in a Model of Capital Market Equilibrium.” Journal of Political Economy, 87 (08 1979), 673–700.CrossRefGoogle Scholar
Mayshar, J. “Transaction Costs and the Pricing of Assets.” Journal of Finance, 36 (06 1981), 583–597.CrossRefGoogle Scholar
Merton, R. “Optimal Consumption and Portfolio Rules in a Continuous-Time Model.” Journal of Economic Theory, 3 (12 1971), 373–413.CrossRefGoogle Scholar
Roll, R., and Ross, S.. “An Empirical Investigation of the Arbitrage Pricing Theory.” Journal of Finance, 35 (12 1980), 1073–1103.CrossRefGoogle Scholar
Summers, L. “Does the Stock Market Rationally Reflect Fundamental Values?” Journal of Finance, 41 (07 1986), 591–601.CrossRefGoogle Scholar