Scientists at New York University Publish New Data on General Finance
Investment Weekly News
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According to the authors of a study from New York City, New York, "Constantinides (1986) documents how the impact of transaction costs on per-annum liquidity premia in the standard dynamic allocation problem with i.i.d. returns is an order of magnitude smaller than the cost rate itself."
"Recent papers form portfolios sorted on liquidity measures and find spreads in expected per-annum return that are the same order of magnitude as the transaction cost spread," wrote A.W. Lynch and colleagues, New York University.
The researchers concluded: "When we allow returns to be predictable and introduce wealth shocks calibrated to labor income, transaction costs are able to produce per-annum liquidity premia that are the same order of magnitude as the transaction cost spread."
Lynch and colleagues published their study in the Journal of Finance (Explaining the Magnitude of Liquidity Premia: The Roles of Return Predictability, Wealth Shocks, and State-Dependent Transaction Costs. Journal of Finance, 2011;66(4):1329-1368).
For more information, contact A.W. Lynch, New York University, Stern School Business, New York City, NY 10003, United States.
Publisher contact information for the Journal of Finance is: Wiley-Blackwell, Commerce Place, 350 Main St., Malden 02148, MA, USA.
This article was prepared by Investment Weekly News editors from staff and other reports. Copyright 2011, Investment Weekly News via VerticalNews.com.