The Dynamic Properties of Financial-Market Equilibrium with Trading Fees

Adrian Buss and Bernard Dumas ()

No 21421, NBER Working Papers from National Bureau of Economic Research, Inc

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: G0 G1 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-dge
Note: AP
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Citations: View citations in EconPapers (1)

Published as ADRIAN BUSS & BERNARD DUMAS, 2019. "The Dynamic Properties of Financial‐Market Equilibrium with Trading Fees," The Journal of Finance, vol 74(2), pages 795-844.

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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 (2013)
Working Paper: The Dynamic Properties of Financial-Market Equilibrium with Trading Fees (2013)
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