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Article Dans Une Revue Finance and Stochastics Année : 2018

Equilibrium Returns with Transaction Costs

Résumé

We study how trading costs are reflected in equilibrium returns. To this end, we develop a tractable continuous-time risk-sharing model, where heterogeneous mean-variance investors trade subject to a quadratic transaction cost. The corresponding equilibrium is characterized as the unique solution of a system of coupled but linear forward-backward stochastic differential equations. Explicit solutions are obtained in a number of concrete settings. The sluggishness of the frictional portfolios makes the corresponding equilibrium returns mean-reverting. Compared to the frictionless case, expected returns are higher if the more risk-averse agents are net sellers or if the asset supply expands over time.
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Dates et versions

hal-01569408 , version 1 (26-07-2017)
hal-01569408 , version 2 (14-09-2017)
hal-01569408 , version 3 (05-04-2018)

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Bruno Bouchard, Masaaki Fukasawa, Martin Herdegen, Johannes Muhle-Karbe. Equilibrium Returns with Transaction Costs. Finance and Stochastics, 2018, 22 (3), pp.569-601. ⟨hal-01569408v3⟩
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