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THE GEOMETRY OF ASSET ADJUSTMENT WITH ADJUSTMENT COSTS
Author(s) -
Glick Reuven
Publication year - 1984
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1984.tb00382.x
Subject(s) - economics , asset (computer security) , marginal cost , portfolio , marginal utility , substitution (logic) , constant (computer programming) , econometrics , modern portfolio theory , microeconomics , financial economics , computer science , computer security , programming language
This paper provides a geometric analysis of asset adjustment behavior in response to changes in expected return and wealth. The analysis permits discussion of the role of different adjustment cost and risk attitude assumptions within a unified framework. It is shown that changes in expected return generally induce portfolio revision only if the marginal rate of substitution between assets is less than their relative marginal costs of adjustment. Wealth disturbances may induce sequential, rather than simultaneous, asset adjustment if marginal adjustment costs are constant or decreasing and the investor is risk neutral.