The Forgone Gains of Incomplete Portfolios

Monica Paiella

Review of Financial Studies, 2007, vol. 20, issue 5, pages 1623-1646

Abstract: This article proposes a test for the cost-based explanation of nonparticipation, by estimating a lower bound to the forgone gains of incomplete portfolios; these are in turn a lower bound to the costs that could rationalize nonparticipation in financial markets: high bounds would imply implausibly high costs. Assuming isoelastic utility and a relative risk aversion of three or less, for the stock market I estimate an average lower bound of between 0.7 and 3.3 percent of consumption. Since total annual (observable plus unobservable) participation costs are likely to exceed these bounds, the cost-based explanation is not rejected by this test. , Oxford University Press.

Date: 2007
View citations in EconPapers

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhm022 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The Foregone Gains of Incomplete Portfolios (2006)
Working Paper: The forgone gains of incomplete portfolios (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:oup:rfinst:v:20:y:2007:i:5:p:1623-1646

Ordering information: This journal article can be ordered from
http://www4.oup.co.uk/revfin/subinfo/

Access Statistics for this article

Review of Financial Studies is edited by Maureen O'Hara

More articles in Review of Financial Studies from Oxford University Press for Society for Financial Studies
Address: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().