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The Effects of Transaction Costs on Households' Financial Asset Demands

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  • Hess, Alan C

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 percent of wealth, to & billion per year, 1.6 percent of wealth. The costs of not trading depend on the variability of relative rates of return and the interest elasticities of asset demands. Copyright 1991 by Ohio State University Press.

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  • Hess, Alan C, 1991. "The Effects of Transaction Costs on Households' Financial Asset Demands," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 383-409, August.
    • Handle: RePEc:mcb:jmoncb:v:23:y:1991:i:3:p:383-409
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    Cited by:

    1. Marlene Kionka & Martin Odening & Jana Plogmann & Matthias Ritter, 2021. "Measuring liquidity in agricultural land markets," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 82(4), pages 690-713, September.
    2. Enzo Dia & Massimo Giuliodori, 2012. "Portfolio separation and the dynamics of bank interest rates," Scottish Journal of Political Economy, Scottish Economic Society, vol. 59(1), pages 28-46, February.
    3. Enzo Dia, 2002. "A Reconciliation of the Evidence about Bank Lending with Portfolio Theory," Working Papers 56, University of Milano-Bicocca, Department of Economics, revised Sep 2002.
    4. Enzo Dia, 2004. "Monopolistic Pricing in the Banking Industry: a Dynamic Model," Working Papers 73, University of Milano-Bicocca, Department of Economics, revised May 2004.
    5. Enzo Dia, 2004. "Monopolistic Pricing in the Banking Industry: a Dynamic Portfolio Model," Finance 0411025, University Library of Munich, Germany.
    6. Enzo Dia, 2004. "Imperfect Information and Monopolistic Pricing in the Banking Industry," Working Papers 74, University of Milano-Bicocca, Department of Economics, revised May 2004.
    7. Gourieroux, Christian & Tiomo, A. & Trognon, A., 1997. "Composition des portefeuilles des ménages: une analyse scores sur données françaises," CEPREMAP Working Papers (Couverture Orange) 9716, CEPREMAP.
    8. Feltenstein, Andrew & Iwata, Shigeru, 2002. "Why is it so hard to finance budget deficits? Problems of a developing country," Journal of Asian Economics, Elsevier, vol. 13(4), pages 531-544.

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