Abstract

http://ssrn.com/abstract=1412042
 
 

References (20)



 
 

Citations (14)



 


 



Optimal Inattention to the Stock Market with Information Costs and Transactions Costs


Andrew B. Abel


University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Janice C. Eberly


Northwestern University - Kellogg School of Management

Stavros Panageas


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

May 2009

NBER Working Paper No. w15010

Abstract:     
Recurrent intervals of inattention to the stock market are optimal if consumers incur a utility cost to observe asset values. When consumers observe the value of their wealth, they decide whether to transfer funds between a transactions account from which consumption must be financed and an investment portfolio of equity and riskless bonds. Transfers of funds are subject to a transactions cost that reduces wealth and consists of two components: one is proportional to the amount of assets transferred, and the other is a fixed resource cost. Because it is costly to transfer funds, the consumer may choose not to transfer any funds on a particular observation date. In general, the optimal adjustment rule---including the size and direction of transfers, and the time of the next observation---is state-dependent. Surprisingly, unless the fixed resource cost of transferring funds is large, the consumer's optimal behavior eventually evolves to a situation with a purely time-dependent rule with a constant interval of time between observations. This interval of time can be substantial even for tiny observation costs. When this situation is attained, the standard consumption Euler equation holds between observation dates if the consumer is sufficiently risk averse.

Number of Pages in PDF File: 41

working papers series





Download This Paper

Date posted: June 1, 2009  

Suggested Citation

Abel, Andrew B. and Eberly, Janice C. and Panageas, Stavros, Optimal Inattention to the Stock Market with Information Costs and Transactions Costs (May 2009). NBER Working Paper No. w15010. Available at SSRN: http://ssrn.com/abstract=1412042

Contact Information

Andrew B. Abel (Contact Author)
University of Pennsylvania - Finance Department ( email )
The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-4801 (Phone)
215-573-7244 (Fax)
HOME PAGE: http://finance.wharton.upenn.edu/~abel/

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Janice C. Eberly
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-467-1840 (Phone)
847-491-5719 (Fax)
Stavros Panageas
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 421
Downloads: 33
References:  20
Citations:  14

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.391 seconds