재무연구 제 권 호 (2015년 5월)
Asian Review of Financial Research, Vol., No..
pp.943~976
pp.943~976
Liquidation Shocks and Transaction Costs
Bong-Gyu Jang Department of Industrial and Management Engineering, POSTECH, Kyungbuk, Korea
Hyeng Keun Koo Department of Business Administration, Ajou University, Suwon, Korea
Seunkyu Lee Department of Industrial and Management Engineering, POSTECH, Kyungbuk, Korea
This paper investigates an Epstein-Zin type (1989, 1991) investors' optimal consumption and portfolio choice problem in the presence of transaction costs and liquidation shocks. We model the liquidation shocks as a Poisson process, which enforces the representative investors to liquidate their wealth in an illiquid asset. We calculate an average liquidity premium to transaction cost (LPTC) ratio with the steady state distribution and show that the liquidation shocks can signicantly amplify the eect of the transaction costs on the excess rate of return of the illiquid asset. Our further numerical analysis also demonstrates how the level of elasticity of intertemporal substitution, as well as relative risk aversion, aects the investors' optimal trading behavior.
Bong-Gyu Jang
Hyeng Keun Koo
Seunkyu Lee
This paper investigates an Epstein-Zin type (1989, 1991) investors' optimal consumption and portfolio choice problem in the presence of transaction costs and liquidation shocks. We model the liquidation shocks as a Poisson process, which enforces the representative investors to liquidate their wealth in an illiquid asset. We calculate an average liquidity premium to transaction cost (LPTC) ratio with the steady state distribution and show that the liquidation shocks can signicantly amplify the eect of the transaction costs on the excess rate of return of the illiquid asset. Our further numerical analysis also demonstrates how the level of elasticity of intertemporal substitution, as well as relative risk aversion, aects the investors' optimal trading behavior.
stochastic dierential utility,recursive utility,transaction cost,elasticity of intertemporal substitution,wealth shock.
