Details

Autor(en) / Beteiligte

• Gârleanu, Nicolae
• Pedersen, Lasse Heje

Titel

Dynamic portfolio choice with frictions

Ist Teil von

• Journal of economic theory, 2016-09, Vol.165, p.487-516

Ort / Verlag

New York: Elsevier Inc

Erscheinungsjahr

2016

Link zum Volltext

Quelle

Alma/SFX Local Collection

Beschreibungen/Notizen

• We show how portfolio choice can be modeled in continuous time with transitory and persistent transaction costs, multiple assets, multiple signals predicting returns, and general signal dynamics. The objective function is derived from the limit of discrete-time models with endogenous transaction costs due to optimal dealer behavior. We solve the model explicitly and the intuitive solution is also the limit of the solutions of the corresponding discrete-time models. We show how the optimal high-frequency trading strategy depends on the nature of the trading costs, which in turn depend on dealers' inventory dynamics. Finally, we provide equilibrium implications and illustrate the model's broader applicability to micro- and macro-economics, monetary policy, and political economy.