Do Individual Investors Ignore Transaction Costs?

61 Pages Posted: 26 May 2017 Last revised: 14 Dec 2018

See all articles by Deniz Anginer

Deniz Anginer

World Bank Research

Xue Han

San Francisco State University

Çelim Yıldızhan

Koç University

Multiple version iconThere are 2 versions of this paper

Date Written: December 13, 2018


Using close to 800,000 transactions by 66,000 households in the United States and close to 2,000,000 transactions by 303,000 households in Finland, this paper shows that individual investors with longer holding periods choose to hold less liquid stocks in their portfolios, consistent with Amihud and Mendelson’s (1986) theory of liquidity clienteles. The relationship between holding periods and transaction costs is stronger among more financially sophisticated households. Households whose holding periods are positively related to transaction costs also earn higher gross returns on their investments before accounting for transaction costs, suggesting that attention to non-salient transaction costs is an indication of investing ability. The main findings are confirmed by analyzing changes in investors’ holding periods around exogenous shocks to stock liquidity. Our findings challenge the notion that individual investors ignore non-salient costs when making investment decisions and suggest that they are cognizant of at least one particular type of non-salient cost, namely the cost of trading stocks, revealing a unique aspect of their rationality.

Keywords: individual investors; liquidity; transaction costs; investor attention; behavioral bias

JEL Classification: D82, D9, G4, G11, G12, G14, G32, G33, L14

Suggested Citation

Anginer, Deniz and Han, Xue and Yıldızhan, Çelim, Do Individual Investors Ignore Transaction Costs? (December 13, 2018). Available at SSRN: or

Deniz Anginer

World Bank Research ( email )

1818 H Street, NW
Washington, DC 20433
United States

Xue Han

San Francisco State University ( email )

1600 Holloway Avenue
San Francisco, CA 94132
United States

Çelim Yıldızhan (Contact Author)

Koç University ( email )

College of Administrative Sciences and Economics
Rumeli Feneri Yolu, Sariyer
Istanbul, 34450

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