Dynamic Trading with Predictable Returns and Transaction Costs

AbstractThis paper numerically solves the decision problem of a multiperiod constant relative risk aversion individual who faces transaction costs and has access to two risky assets, both with predictable returns. With proportional transaction costs and independent and identically distributed returns, we numerically find the rebalancing rule to be a no-trade region for the portfolio weights with rebalancing to the boundary. The shape of the no-trade region depends on the correlation between the two risky assets. With predictable returns, there is instead a no-trade region for each state. We also examine several important economic questions, including the utility cost of not being able to buy on margin or short stock.

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Dynamic Asset Allocation with Predictable Returns and Transaction Costs

SSRN Electronic Journal ◽

10.2139/ssrn.2618910 ◽

2015 ◽

Cited By ~ 16

Author(s):

Pierre Collin-Dufresne ◽

Kent D. Daniel ◽

Ciamac C. Moallemi ◽

Mehmet Saglam

Keyword(s):

Transaction Costs ◽

Asset Allocation ◽

Dynamic Asset Allocation ◽

Predictable Returns

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From transaction costs to transaction value: Overcoming the frictional paradigm

Voprosy Ekonomiki ◽

10.32609/0042-8736-2020-8-51-81 ◽

2020 ◽

pp. 51-81

Author(s):

D. P. Frolov

Keyword(s):

Transaction Costs ◽

Transaction Cost ◽

Path Dependence ◽

Transaction Cost Economics ◽

Cost Minimization ◽

Low Cost ◽

Coase Theorem ◽

Transactional Analysis ◽

Transaction Sector ◽

Transaction Value

The transaction cost economics has accumulated a mass of dogmatic concepts and assertions that have acquired high stability under the influence of path dependence. These include the dogma about transaction costs as frictions, the dogma about the unproductiveness of transactions as a generator of losses, “Stigler—Coase” theorem and the logic of transaction cost minimization, and also the dogma about the priority of institutions providing low-cost transactions. The listed dogmas underlie the prevailing tradition of transactional analysis the frictional paradigm — which, in turn, is the foundation of neo-institutional theory. Therefore, the community of new institutionalists implicitly blocks attempts of a serious revision of this dogmatics. The purpose of the article is to substantiate a post-institutional (alternative to the dominant neo-institutional discourse) value-oriented perspective for the development of transactional studies based on rethinking and combining forgotten theoretical alternatives. Those are Commons’s theory of transactions, Wallis—North’s theory of transaction sector, theory of transaction benefits (T. Sandler, N. Komesar, T. Eggertsson) and Zajac—Olsen’s theory of transaction value. The article provides arguments and examples in favor of broader explanatory possibilities of value-oriented transactional analysis.

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