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Decision Frequency and Synchronization Across Agents: Implications for Aggregate Consumption and Equity Return
Author(s) -
LYNCH ANTHONY W.
Publication year - 1996
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1996.tb04076.x
Subject(s) - portfolio , volatility (finance) , economics , equity (law) , consumption (sociology) , aggregate (composite) , econometrics , aggregate data , microeconomics , financial economics , statistics , mathematics , social science , materials science , sociology , political science , law , composite material
This article examines a model in which decisions are made at fixed intervals and are unsynchronized across agents. Agents choose nondurable consumption and portfolio composition, and either or both can be chosen infrequently. A small utility cost is associated with both decisions being made infrequently. Calibrating returns to the U.S. economy, less frequent and unsynchronized decision‐making delivers the low volatility of aggregate consumption growth and its low correlation with equity return found in U.S. data. Allowing portfolio rebalancing to occur every period has a negligible impact on the joint behavior of aggregate consumption and returns.