TY - JOUR
T1 - Asset returns with transactions costs and uninsured individual risk
AU - Aiyagari, S. Rao
AU - Gertler, Mark
PY - 1991/6
Y1 - 1991/6
N2 - We explore whether incorporating an explicit motive for holding liquid assets within an equilibrium asset pricing model helps explain the following features of asset returns and turnover in the post-war U.S. economy: (i) the low, risk-free real interest rate, (ii) the large spread between returns on liquid assets and stocks, and (iii) the greater transaction velocity of liquid assets relative to stocks. We introduce a demand for liquid assets by adding uninsured individual risk together with differential costs of trading securities. Numerical simulations attempting to match the return data generate a ratio of liquid assets to income considerably below observed levels.
AB - We explore whether incorporating an explicit motive for holding liquid assets within an equilibrium asset pricing model helps explain the following features of asset returns and turnover in the post-war U.S. economy: (i) the low, risk-free real interest rate, (ii) the large spread between returns on liquid assets and stocks, and (iii) the greater transaction velocity of liquid assets relative to stocks. We introduce a demand for liquid assets by adding uninsured individual risk together with differential costs of trading securities. Numerical simulations attempting to match the return data generate a ratio of liquid assets to income considerably below observed levels.
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U2 - 10.1016/0304-3932(91)90012-D
DO - 10.1016/0304-3932(91)90012-D
M3 - Article
AN - SCOPUS:44949278227
SN - 0304-3932
VL - 27
SP - 311
EP - 331
JO - Carnegie-Rochester Confer. Series on Public Policy
JF - Carnegie-Rochester Confer. Series on Public Policy
IS - 3
ER -