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| Author: | Luttmer, E. |
| Title: | Asset pricing in economies with frictions |
| Journal: | Econometrica
1996 : NOV, VOL. 64:6, p. 1439-1467 |
| Index terms: | ASSETS PRICING CONSUMPTION TRANSACTION COSTS |
| Language: | eng |
| Abstract: | 9his paper examines how proportional transaction costs, short-scale constraints, and margin requirements affect inferences based on asset return data about intertemporal marginal rates of substitution (IMRSs). It is shown that small transaction costs can greatly reduce the required variability of IMRSs. This suggests that the low variability of many parametric, aggregate consumption based IMRSs need not be inconsistent with asset return data. Euler inequalities for a transaction cost economy with power utility are tested using aggregate consumption data and returns on stocks and short maturity US treasury bills. |
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