The Dynamic Properties of Financial‐Market Equilibrium with Trading Fees

Adrian Buss and Bernard Dumas ()

Journal of Finance, 2019, vol. 74, issue 2, 795-844

Abstract: We incorporate trading fees into a dynamic, multiagent general‐equilibrium model in which traders optimally decide when to trade. For that purpose, we propose an innovative algorithm that synchronizes the traders. Securities prices are not so much affected by the payment of the fees itself, but rather by the trade‐off that the traders face between smoothing consumption and smoothing holdings. In calibrated examples, the interest rate and welfare decline with trading fees, while risk premia and volatilities increase. Liquidity risk and expected liquidity are priced, leading to deviations from the consumption‐CAPM. With trading fees, capital is slow‐moving, generating slow price reversal.

Date: 2019
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Citations: View citations in EconPapers (6)

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https://doi.org/10.1111/jofi.12744

Related works:
Working Paper: The Dynamic Properties of Financial-Market Equilibrium with Trading Fees (2015)
Working Paper: The Dynamic Properties of Financial-Market Equilibrium with Trading Fees (2013)
Working Paper: The Dynamic Properties of Financial-Market Equilibrium with Trading Fees (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:74:y:2019:i:2:p:795-844

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