Click here for search results
Liquidity clienteles : transaction costs and investment decisions of individual investors
 
Author:Anginer, Deniz; Collection Title:Policy Research working paper ; no. WPS 5318
Country:World; Date Stored:2010/05/26
Document Date:2010/05/01Document Type:Policy Research Working Paper
SubTopics:Emerging Markets; Economic Theory & Research; Markets and Market Access; Debt Markets; Mutual FundsLanguage:English
Region:The World RegionReport Number:WPS5318
Volume No:1 of 1  

Summary: Theoretical papers link the liquidity premium to the optimal trading decisions of investors facing transaction costs. In particular, investors' holding periods determine how transaction costs are amortized and priced in asset returns. Using a unique data set containing two million trades, this paper investigates the relationship between holding periods and transaction costs for 66,000 households from a large discount brokerage. The author finds that transaction costs are an important determinant of investors' holding periods, after controlling for household and stock characteristics. The relationship between holding periods and transaction costs is stronger among more sophisticated investors. Households with longer holding periods earn significantly higher returns after amortized transaction costs, and households that have holding periods that are positively related to transaction costs earn both higher gross and net returns. The author shows that there is correlation in the demand for liquid assets across households and, consistent with the notion of flight to liquidity, this demand increases during times of low market liquidity. Households with higher incomes and with higher wealth invested in the stock market supply liquidity when market liquidity is low.

Official Documents
Official, scanned versions of documents (may include signatures, etc.)
File TypeDescriptionFile Size (mb)
PDF 56 pagesOfficial version*3.92 (approx.)
TextText version**
How To Order

* The official version is derived from scanning the final, paper copy of the document and is the official,
archived version including all signatures, charts, etc.
** The text version is the OCR text of the final scanned version and is not an accurate representation of the final text.
It is provided solely to benefit users with slow connectivity.



Permanent URL for this page: http://go.worldbank.org/MPWR7DHKV0