PORTFOLIO REBALANCING AND ASSET PRICING WITH HETEROGENEOUS INATTENTION

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Resumen

Can households' inattention to the stock market quantitatively account for the inertia in portfolio rebalancing? I address this question by introducing an observation cost into a production economy with heterogeneous agents. In this environment, inattention changes endogenously over time and across agents. I find that inattention explains the inertia in portfolio rebalancing and its heterogeneity across households. Inattention also rationalizes the limited stock market participation observed in the data and improves the asset pricing performance of the model. Finally, I present a novel testable implication linking the effects of inattention on portfolio choices and asset prices to households' funding liquidity.

Idioma originalInglés
Páginas (desde-hasta)699-726
Número de páginas28
PublicaciónInternational Economic Review
Volumen59
N.º2
DOI
EstadoPublicada - may 2018
Publicado de forma externa

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