Life-cycle portfolio choice with liquid and illiquid assets

Gomes, F and Campanale, C and Fugazza, C (2015) Life-cycle portfolio choice with liquid and illiquid assets. Journal of Monetary Economics, 71. pp. 67-83. ISSN 0304-3932

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Traditionally, quantitative models that have studied households׳ portfolio choices have focused exclusively on the different risk properties of alternative financial assets. We introduce differences in liquidity across assets in the standard life-cycle model of portfolio choice. More precisely, in our model, stocks are subject to transaction costs, as considered in recent macroliterature. We show that when these costs are calibrated to match the observed infrequency of households׳ trading, the model is able to generate patterns of portfolio stock allocation over age and wealth that are constant or moderately increasing, thus more in line with the existing empirical evidence.

Item Type: Article
Additional Information: © 2014 Elsevier B.V.
Subject Areas: Finance
DOI: 10.1016/j.jmoneco.2014.11.008
Date Deposited: 02 Mar 2016 18:51
Last Modified: 23 Mar 2016 10:07

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