The Effects of Transaction Costs on Household’s Financial Asset Demands

Authors

  • Alan C. Hess University of Washington

DOI:

https://doi.org/10.1016/1057-0810(91)90044-Y

Abstract

Changes in risk-adjusted, expected, relative rates of return on financial assets signal rebalancing trades to financial asset owners. Transaction costs reduce the number and frequency of these trades below what they would be if trading costs were smaller or nonexistent. By not trading, households incur implicit costs of holding poorly diversified portfolios. These costs range from $4 billion per year, 0.28% of wealth, to $50 billion per year, 1.6 % of wealth. The costs of not trading depend on the variability of relative rates of return, and the interest elasticities of asset demands. Journal ofMoney, Credit, and Banking, (August 1991), Part 1, pp. 383- 409. (Reprinted with permission of the Journal ofMoney, Credit, and Banking.)

Published

1991-12-30

How to Cite

Hess, A. C. (1991). The Effects of Transaction Costs on Household’s Financial Asset Demands. Financial Services Review, 1(2), 181–182. https://doi.org/10.1016/1057-0810(91)90044-Y

Issue

Vol. 1 No. 2 (1991): Financial Services Review

Section

Abstracts of Articles on Individual Financial Management

License

Copyright (c) 1991 JAI Press Inc.

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