On Portfolio Frictions, Asset Returns and Volatility *

Aurélien Eyquem, Céline Poilly and Anna Belianska
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Céline Poilly: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique
Anna Belianska: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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Abstract: We rationalize the observed short-run differences in corporate and long-term government bond yields in an financial-accelerator model with frictions that restrict changes in portfolio shares. We estimate the model on quarterly data for the Euro Area from 1999 to 2019, and show that the portfolio friction parameter is positive and significant. Portfolio frictions not only generate a time-varying wedge between the two returns that fits the data, but also raise the volatility of return differentials, and the precautionary motive of savers. As a result, the macroeconomic effects of uncertainty shocks are amplified by portfolio frictions.

Keywords: Financial Accelerator; Uncertainty Shocks; Portfolio frictions (search for similar items in EconPapers)
Date: 2023-10-23
Note: View the original document on HAL open archive server: https://amu.hal.science/hal-04525007v1
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Published in European Economic Review, 2023, 160, pp.104623. ⟨10.1016/j.euroecorev.2023.104623⟩

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Journal Article: On portfolio frictions, asset returns and volatility (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04525007

DOI: 10.1016/j.euroecorev.2023.104623

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