The Dynamic Properties of Financial-Market Equilibrium with Trading Fees

Bernard Dumas () and Adrian Buss

No 9524, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We incorporate trading fees in a long-horizon dynamic general-equilibrium model in which traders optimally and endogenously decide when and how much to trade. A full characterization of equilibrium is provided, which allows us to study the dynamics of equilibrium trades, equilibrium asset prices and rates of return in the presence of trading fees. We exhibit the effect of trading fees on deviations from the consumption-CAPM and analyze the pricing of endogenous liquidity risk. We compare, for the same shocks, the impulse responses of this model to those of a model in which trading is infrequent because of trader inattention.

JEL-codes: G10 G12 (search for similar items in EconPapers)
Date: 2013-06
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: The Dynamic Properties of Financial‐Market Equilibrium with Trading Fees (2019)
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)
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