Costly Portfolio Adjustment / Yosef Bonaparte, Russell Cooper.

Format:

Book

Author/Creator:

Bonaparte, Yosef.

Contributor:

National Bureau of Economic Research.

Cooper, Russell.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15227.

NBER working paper series no. w15227

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

This paper studies the dynamic optimization problem of a household when portfolio adjustment is costly. The analysis is motivated by the observation that on an annual basis, less than 71% of stockholders typically adjust their portfolio of common stocks. We use this, and related observations, to estimate the parameters of household preferences and portfolio adjustment costs. We find significant adjustment costs, beyond the direct costs of buying and selling assets. These adjustment costs and the consequent inactivity in portfolio adjustment imply that inferences drawn about household risk aversion and the elasticity of intertemporal substitution are biased: household risk aversion is lower compared to other estimates and it is not equal to the inverse of the elasticity of intertemporal substitution.

Notes:

Print version record

August 2009.