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Pump up the Volume: Income Risk and Counter-cyclical Asset Trading

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  • Gian Domenico Sarolli

    (Department of Economics and Business, Drew University)

Abstract

This paper develops a model of consumption smoothing using financial assets, incomplete markets, and idiosyncratic shocks. It contributes to the literature on asset markets by exposing a structural break in stock trading volume in the 1970s, which in turn demonstrates a negative correlation between trading volume and aggregate output. The model is able to not only match the correct sign of this correlation but also a portion of the standard deviation of turnover.

Suggested Citation

  • Gian Domenico Sarolli, 2016. "Pump up the Volume: Income Risk and Counter-cyclical Asset Trading," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 42(4), pages 594-610, September.
    • Handle: RePEc:pal:easeco:v:42:y:2016:i:4:d:10.1057_eej.2014.80
    DOI: 10.1057/eej.2014.80
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    References listed on IDEAS

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