EconPapers    
Economics at your fingertips  
 

Liquidity Premia and Transaction Costs

Bong‐gyu Jang, Hyeng Keun Koo, Hong Liu and Mark Loewenstein

Journal of Finance, 2007, vol. 62, issue 5, 2329-2366

Abstract: Standard literature concludes that transaction costs only have a second‐order effect on liquidity premia. We show that this conclusion depends crucially on the assumption of a constant investment opportunity set. In a regime‐switching model in which the investment opportunity set varies over time, we explicitly characterize the optimal consumption and investment strategy. In contrast to the standard literature, we find that transaction costs can have a first‐order effect on liquidity premia. However, with reasonably calibrated parameters, the presence of transaction costs still cannot fully explain the equity premium puzzle.

Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (48) Track citations by RSS feed

Downloads: (external link)
https://doi.org/10.1111/j.1540-6261.2007.01277.x

Related works:
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: https://EconPapers.repec.org/RePEc:bla:jfinan:v:62:y:2007:i:5:p:2329-2366

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

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 ().

 
Page updated 2021-04-01
Handle: RePEc:bla:jfinan:v:62:y:2007:i:5:p:2329-2366