Asset Prices, Trading Volumes, and Investor Welfare in Markets with Transaction Costs　

Chiaki Hara ()
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Chiaki Hara: Institute of Economic Research, Kyoto University

No 862, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: In a model of asset markets with transaction costs, we find a sufcient condition for an increase in transaction costs to increase buying prices, decrease selling prices, decrease the trading volume, and make all active investors worse off. The sufficient condition is met by all CARA utility functions. As for CRRA utility functions, it is met if and only if CRRA coefficients are less than or equal to one. We show that whenever some investor has a CRRA coefficient greater than one, an increase in transaction costs may well decrease buying prices and make buyers better off.

Keywords: General equilibrium; asset markets; transaction costs; Tobin tax; constant absolute risk aversion; constant relative risk aversion. (search for similar items in EconPapers)
JEL-codes: D51 D53 D61 D63 G11 G12 (search for similar items in EconPapers)
Date: 2013-04
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Citations: View citations in EconPapers (1)

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