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Asset Returns with transaction costs and uninsured individual risk

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  • S Rao Aiyagari
  • Mark Gertler

Abstract

(iii) Transaction velocities are much higher for liquid assets than for stocks, specifically, we explore the extent to which incorporating an explicit motive for holding liquid assets can explain the above observations. We introduce a demand for liquid assets by adding uninsured individual risk together with differential costs of trading securities. We then parameterize a class of such models and compute the stationary equilibria. The simulations indicate that attempting to match the return data generates a ratio of liquid assets to income considerably be low observed levels. We then explore some possible reasons for this discrepancy.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

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  • S Rao Aiyagari & Mark Gertler, 1997. "Asset Returns with transaction costs and uninsured individual risk," Levine's Working Paper Archive 648, David K. Levine.
  • Handle: RePEc:cla:levarc:648
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