Anginer, Deniz and Yildizhan, Celim and Han, Xue Snow (2017): Do Individual Investors Ignore Transaction Costs?
Preview |
PDF
MPRA_paper_79358.pdf Download (648kB) | Preview |
Abstract
Using close to 800,000 (2,000,000) transactions by 66,000 (303,000) households in the United States (in Finland), we show 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 amongst 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. We confirm our findings by analyzing changes to investors’ holding periods around exogenous shocks to stock liquidity.
Item Type: | MPRA Paper |
---|---|
Original Title: | Do Individual Investors Ignore Transaction Costs? |
English Title: | Do Individual Investors Ignore Transaction Costs? |
Language: | English |
Keywords: | individual investors’ liquidity decisions; individual investors’ rationality; liquidity decisions and trading ability; attention to non-salient transaction costs and rationality |
Subjects: | D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy ; Liquidation L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L14 - Transactional Relationships ; Contracts and Reputation ; Networks M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing |
Item ID: | 79358 |
Depositing User: | Dr. Celim Yildizhan |
Date Deposited: | 25 May 2017 07:46 |
Last Modified: | 02 Oct 2019 15:52 |
References: | Acharya, V. V. and L. H. Pedersen, 2005, “Asset pricing with liquidity risk,” Journal of Financial Economics, 77, 375–410 Alexander, G., J. Jones and P. J. Nigro, 1998, “Mutual fund shareholders: characteristics, investor knowledge, and sources of information,” Financial Services Review 7, 301–316 Amihud, Y., 2002, “Illiquidity and stock returns: Cross-section and time series effects,” Journal of Financial Markets, 5, 31–56 Amihud, Y. and H. Mendelson, 1986, “Asset pricing and the bid-ask spread,” Journal of Financial Economics, 17, 223–249 Barber, B. M., Y. Lee, Y. Liu and T. Odean, 2009, “Just How Much Do Individual Investors Lose by Trading?” Review of Financial Studies, 22 (2): 609-632 Barber, B. M., and T. Odean, 2000, “Trading is hazardous to your wealth: the common stock investment performance of individual investors,” Journal of Finance, 55, 773–806 Barber, B. M., and T. Odean. 2001, "Boys will be boys: Gender, overconfidence, and common stock investment," The Quarterly Journal of Economics, 116 (1): 261-292 Barber, B. M., T. Odean, and L. Zheng, 2005, “Out of sight, out of mind: The effects of expenses on mutual fund flows,” Journal of Business, 78, 2095–2119 Barber, B. M., T. Odean, and N. Zhu, 2006, “Do noise traders move markets?” Working Paper, UC Davis Bris, A., W. Goetzmann, and N. Zhu, 2007, “Efficiency and the Bear: Short Sales and Markets Around the World,” Journal of Finance, 62: 1029–1079 Byun, J. and M. S. Rozeff, 2003, “Long-run performance after stock splits: 1927 to 1996,” Journal of Finance 58, 1063-1085 Chetty, R., A. Looney, and K. Kroft, 2009, "Salience and Taxation: Theory and Evidence," American Economic Review, 99(4): 1145-77. Choi, N., M. Fedenia, H. Skiba, and T. Sokolyk, 2017, “Portfolio concentration and performance of institutional investors worldwide,” Journal of Financial Economics, 123, 189-208 Christakis, N.A. and P. D. Allison, 2006, “Mortality after the Hospitalization of a Spouse,” New England Journal of Medicine, 354, 719-730 Conroy, Robert M., Robert S. Harris, and Bruce A. Benet, 1990, “The effects of stock splits on bid-ask spreads,” Journal of Finance 45, 1285-95 Constantinides, G. M., 1986, “Capital market equilibrium with transaction costs,” Journal of Political Economy, 94, 842–862 Coval, J. D., D. A. Hirshleifer, and T. Shumway, 2005, “Can individual investors beat the market?” Working Paper, University of Michigan Cox, D., 1972, “Regression Models and Life-Tables,” Journal of the Royal Statistical Society, Series B (Methodological), 34 (2): 187-220 Cox, D., and D. Oakes, 1984, Analysis of survival data, Chapman and Hall, London; New York Daniel, K., M. Grinblatt, S. Titman, and R. Wermers, 1997, “Measuring mutual fund performance with characteristic-based benchmarks,” Journal of Finance, 52, 1035–1058 Desai, Anand S, M Nimalendran, and S Venkataraman, 1998, “Changes in Trading Activity Following Stock Splits and Their Effect on Volatility and the Adverse- Information Component of the Bid-Ask Spread,” Journal of Financial Research 21,159-83 Feng, L., and M. S. Seasholes, 2005, “Do investor sophistication and trading experience eliminate Behavioral biases in financial markets?” Review of Finance, 9, 305–351 Finkelstein, A., 2009, “E-ztax: Tax Salience and Tax Rates,” Quarterly Journal of Economics, 124 (3): 969-1010 French, Kenneth R., 2008, “Presidential Address: The Cost of Active Investing,” Journal of Finance, 63(4), 1537-1573 Gil-Bazo, J. and P. Ruiz-Verdu, 2008, “When cheaper is better: Fee determination in the market for equity mutual funds,” Journal of Economic Behavior & Organization 67 (3), 871-885 Gil-Bazo, J. and P. Ruiz-Verdu, 2009, “The relation between price and performance in the mutual fund industry,” Journal of Finance 64 (5), 2153-2183 Goetzmann, W. N., A. Kumar, 2008, “Equity portfolio diversification,” Review of Finance 12(3): 433-463 Grinblatt, M., and M. Keloharju, 2000, “The investment behavior and performance of various investor types: a study of Finland's unique data set,” Journal of Financial Economics 55(1): 43–67 Grinblatt, M., and M. Keloharju, 2001, “What makes investors trade?” Journal of Finance, 56, 589–616 Hasbrouck, J., 2009, “Trading Costs and Returns for U.S. Equities: Estimating Effective Costs from Daily Data,” Journal of Finance 64(3): 1445–1477 Hossain, T. and J. Morgan. 2006, “Plus Shipping and Handling: Revenue (Non) Equivalence in Field Experiments on eBay,” B.E. Journals in Economic Analysis and Policy: Advances in Economic Analysis and Policy, 6(2): 1–27. Huang, M., 2003, “Liquidity shocks and equilibrium liquidity premia,” Journal of Economic Theory, 109, 104–129 Ivkovic, Z., C. Sialm, and S. J. Weisbenner, 2008, “Portfolio concentration and the performance of individual investors,” Journal of Financial and Quantitative Analysis 43(3): 613-655 Ivkovic, Z., J. Poterba and S. J. Weisbenner, 2005, “Tax-Motivated Trading by Individual Investors,” The American Economic Review, 95(5): 1605-1630 Lakonishok, Josef, and Baruch Lev, 1987, “Stock Splits and stock dividends: Why, who and when,” Journal of Finance 42, 913-932 Lesmond, D. A., J. P. Ogden and C. A. Trzcinka, 1999, “A New Estimate of Transaction Costs,” Review of Financial Studies 12 (5): 1113-1141 Li X., Z. Geng, A. Subrahmanyam, and H. Yu, 2016, “Portfolio concentration and performance of institutional investors worldwide,” Working Paper, UCLA Lin, D.Y. and L.J. Wei, 1989, “The robust inference for the cox proportional hazards model,” Journal of the American Statistical Association, 84, 1074–1078 Lo, A. W., H. Mamaysky, and J.Wang, 2004, “Asset prices and trading volume under fixed transaction costs,” Journal of Political Economy, 112, 1054–1090 Lynch, A. W. and S. Tan, 2011, “Explaining the magnitude of liquidity premia: The roles of return predictability, wealth shocks and state dependent transaction costs,” Journal of Finance 66(4): 1329–1368 Odean, T., 1999, “Do investors trade too much?,” American Economic Review, 89, 1279–1298. Roll, R., 1984, “A simple implicit measure of the effective bid-ask spread in an efficient market,” Journal of Finance, 39, 1127–1139 Schultz, Paul, 2000, “Stock Splits, Tick Size, and Sponsorship,” Journal of Finance 55,429-50 Seru, A., T. Shumway, and N. Stoffman, 2010, “Learning by trading”, Review of Financial Studies 23 (2): 705-73 Simutin, M., 2013, “Cash Holdings and Mutual Fund Performance,” Review of Finance, 18 (4): 1425-1464 Stoffman, N., 2014, “Who trades with whom? Individuals, institutions, and returns,” Journal of Financial Markets 21: 51-75 Vayanos, D., 1998, “Transactions costs and asset prices: A dynamic equilibrium model,” Review of Financial Studies, 11, 1-58 Vayanos, D., and J.C. Vila, 1999, “Equilibrium interest rate and liquidity premium with transaction costs,” Economic Theory, 13, 509-539 |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/79358 |
Available Versions of this Item
- Do Individual Investors Ignore Transaction Costs? (deposited 25 May 2017 07:46) [Currently Displayed]