Consumption Smoothing and Portfolio Rebalancing: The Effects of Adjustment Costs / Yosef Bonaparte, Russell Cooper, Guozhong Zhu.

Format:

Book

Author/Creator:

Bonaparte, Yosef.

Contributor:

National Bureau of Economic Research.

Cooper, Russell.

Zhu, Guozhong.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16957.

NBER working paper series no. w16957

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Consumption Smoothing and Portfolio Rebalancing

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

This paper studies the dynamics of portfolio rebalancing and consumption smoothing in the presence of non-convex portfolio adjustment costs. The goal is to understand a household's response to income and return shocks. The model includes the choice of two assets: one riskless without adjustment costs and a second risky asset with adjustment costs. With these multiple assets, a household can buffer some income fluctuations through the asset without adjustment costs and engage in costly portfolio rebalancing less frequently. We estimate both preference parameters and portfolio adjustment costs. The estimates are used for evaluating consumption smoothing and portfolio adjustment in the face of income and return shocks.

Notes:

Print version record

April 2011.