Journal of Finance Vol. 51 No. 4 1996
Decision Frequency and Synchronization Across Agents: Implications for Aggregate Consumption and Equity Return
Abstract
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.
- DOI
- 10.2307/2329401
- Volume
- 51
- Issue
- 4
- Pages
- 1479
- Sources
- openalex crossref