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Slow-moving capital and stock returns

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  • Sergey Isaenko

Abstract

This paper studies the effects that delay in capital allocations in the stock market and high short-term trading incentives have on returns of this market. We report that capital inertia makes the Sharpe ratio and the volatility of the stock returns many times higher than in an economy with no capital delays. Furthermore, in agreement with empirical literature, the stock price displays short-term overreaction and high volatility of the conditional Sharpe ratio.

Suggested Citation

  • Sergey Isaenko, 2020. "Slow-moving capital and stock returns," Quantitative Finance, Taylor & Francis Journals, vol. 20(6), pages 969-984, June.
    • Handle: RePEc:taf:quantf:v:20:y:2020:i:6:p:969-984
    DOI: 10.1080/14697688.2020.1720276
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    Cited by:

    1. Johannes Muhle-Karbe & Xiaofei Shi & Chen Yang, 2020. "An Equilibrium Model for the Cross-Section of Liquidity Premia," Papers 2011.13625, arXiv.org.
    2. Lukas Gonon & Johannes Muhle‐Karbe & Xiaofei Shi, 2021. "Asset pricing with general transaction costs: Theory and numerics," Mathematical Finance, Wiley Blackwell, vol. 31(2), pages 595-648, April.

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