Predictability and Transaction Costs: The Impact on Rebalancing Rules and Behavior
Anthony W. Lynch and
Additional contact information
Anthony W. Lynch: New York University,
Journal of Finance, 2000, vol. 55, issue 5, 2285-2309
Recent papers show that predictability calibrated to U.S. data has a large effect on the rebalancing behavior of a multiperiod investor. We find that this continues to be true in the presence of realistic transaction costs. In particular, predictability causes the no-trade region for the risky-asset holding to become state dependent and, on average, wider and higher. Predictability also motivates the investor to spend considerably more on rebalancing and to rebalance more often. In other results, we find that introducing costly liquidation of the risky asset for consumption lowers the average allocation to the risky asset, though only marginally early in life. Our experiments also vary the nature of the return predictability and introduce return heteroskedasticity. Copyright The American Finance Association 2000.
References: Add references at CitEc
Citations: View citations in EconPapers (37) Track citations by RSS feed
Downloads: (external link)
http://www.blackwell-synergy.com/servlet/useragent ... &year=2000&part=null link to full text (text/html)
Access to full text is restricted to subscribers.
Working Paper: Predictability and Transaction Costs: The Impact on Rebalancing Rules and Behavior (1998)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:55:y:2000:i:5:p:2285-2309
Ordering information: This journal article can be ordered from
Access Statistics for this article
More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().