Life-cycle portfolio choice with liquid and illiquid financial assets

Claudio Campanale (), Carolina Fugazza and Francisco Gomes

Journal of Monetary Economics, 2015, vol. 71, issue C, 67-83

Abstract: Traditionally, quantitative models that have studied households׳ portfolio choices have focused exclusively on the different risk properties of alternative financial assets. We introduce differences in liquidity across assets in the standard life-cycle model of portfolio choice. More precisely, in our model, stocks are subject to transaction costs, as considered in recent macroliterature. We show that when these costs are calibrated to match the observed infrequency of households׳ trading, the model is able to generate patterns of portfolio stock allocation over age and wealth that are constant or moderately increasing, thus more in line with the existing empirical evidence.

Keywords: Household portfolio choice; Self-insurance; Cash-in-advance; Transaction cost (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393214001652
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Life-Cycle Portfolio Choice with Liquid and Illiquid Financial Assets (2012)
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:eee:moneco:v:71:y:2015:i:c:p:67-83

DOI: 10.1016/j.jmoneco.2014.11.008

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().