39 Pages Posted: 18 May 2017
Date Written: May 18, 2017
This article investigates the effects of small proportional transaction costs on lifetime consumption and portfolio decisions. The extant literature has focused on agents with additive utility; here, we argue that this is essentially without loss of generality at the leading order for small costs. To shed light on the effects of alternative risk preferences, we in turn perform a higher-order analysis for the archetype of non-additive preferences – the isoelastic recursive utilities proposed by Epstein and Zin.
Keywords: lifetime investment and consumption, recursive utility, Epstein-Zin, transaction costs, asymptotics
JEL Classification: G11, D91, C61
Suggested Citation: Suggested Citation
Melnyk, Yaroslav and Muhle‐Karbe, Johannes and Seifried, Frank Thomas, Lifetime Investment and Consumption with Recursive Preferences and Small Transaction Costs (May 18, 2017). Available at SSRN: https://ssrn.com/abstract=2970469 or http://dx.doi.org/10.2139/ssrn.2970469