10.17889/E109642
Lustig, Hanno
Chien, YiLi
Cole, Harold
Replication data for: Is the Volatility of the Market Price of Risk Due to Intermittent Portfolio Rebalancing?
ICPSR Inter-university Consortium for Political and Social Research
2012
10.1257/aer.102.6.2859
10.1257/aer.102.6.2859
V0
Our paper examines whether the failure of unsophisticated investors to rebalance their portfolios can help to explain the countercyclical volatility of aggregate risk compensation in financial markets. To answer this question, we set up a model in which a large mass of investors do not rebalance their portfolio shares in response to aggregate shocks, while a smaller mass of active investors do. We find that intermittent rebalancers more than double the effect of aggregate shocks on the time variation in risk premia by forcing active traders to sell more shares in good times and buy more shares in bad times. (JEL D14, E32, G11, G12)