 Asset prices, trading volumes, and investor welfare in markets with transaction costsChiaki Hara No 556, CIS Discussion paper series from Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University Abstract: We investigate how an increase in transaction costs affect the equilibrium asset prices and allocations. We find a sufficient condition for an increase in transaction costs to increase buying prices, decrease selling prices, decrease the trading volume, and make all active traders worse off. The sufficient condition is met by a general class of utility functions, which contains all CARA utility functions and even some non-HARA utility functions. As for CRRA utility functions, the class contains all utility functions with CRRA coefficients less than or equal to one. We show that whenever there is an agent with a CRRA coefficient greater than one, an increase in transaction costs may well decrease buying prices and make buyers better off. Keywords: general equilibrium; asset markets; transaction costs; Tobin tax; constant absolute risk aversion; constant relative risk aversion (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hit:cisdps:556 Access Statistics for this paper More papers in CIS Discussion paper series from Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University Contact information at EDIRC. |
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