Asset Returns with Transactions Cost and Uninsured Risk: A Stage III Exercise

S. Aiyagari and Mark Gertler

No 3481, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: (iii) Transaction velocities are much higher for liquid assets than for stocks, specifically, we explore the extent to which incorporating an explicit motive for holding liquid assets can explain the above observations. We introduce a demand for liquid assets by adding uninsured individual risk together with differential costs of trading securities. We then parameterize a class of such models and compute the stationary equilibria. The simulations indicate that attempting to match the return data generates a ratio of liquid assets to income considerably be low observed levels. We then explore some possible reasons for this discrepancy.

Date: 1990-10
Note: ME
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Published as "Asset Returns with Transactions Costs and Uninsurable Individual Risk." Journal of Monetary Economics 27(3):311-331, June 1991.

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Related works:
Journal Article: Asset returns with transactions costs and uninsured individual risk (1991)
Working Paper: ASSET RETURNS WITH TRANSACTIONS COSTS AND UNINSURED INDIVIDUAL RISK: A STAGE III EXERCISE (1990)
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