Presenter: Matthias Lassak, AU

Title: Portfolio-Level Transaction Costs and Market Efficiency

Abstract: Many market participants incur transaction or holding costs on the portfolio instead of on the individual asset level. This paper studies how portfolio-level transaction costs (PFTCs) affect investors’ trading behavior and market outcomes. PFCTs create cost-based trading motives, resulting in comovements of asset prices. Two countervailing forces regarding market efficiency follow: First, PFCTs increase the noise in each individual asset price. Second, due to their comovement, more asset prices are informative about asset fundamentals. Under reasonable conditions, PFTCs act as an additional diversification benefit, reducing market participants’ risk and increasing their information-based trade intensity. As a consequence, PFTCs increase market efficiency.

Presenter: Martin Møller Andreasen, AU

Title: NA

Organizers: Stefan Hirth and Anders Merrild Posselt