Quantitative Economics: Mar, 2022, Volume 2, Issue 1

The cyclical behavior of equity turnover

David N. DeJong, Emilio Espino

We measure the extent to which the cyclical behavior of the turnover of equity
shares generated by individual investors on the New York Stock Exchange can
be accounted for by a single source of trade embedded in a neoclassical growth
economy with dynamically complete markets. The source of trade is heterogene-
ity in agents’ financial wealth. In the post-war United States, turnover has been
more than seven times as volatile as output and has exhibited asynchronous cycli-
cal characteristics: lagged turnover has co-varied positively with output and led
turnover negatively. The baseline model, calibrated to match the mean behavior
of asset returns and the distribution of wealth across households, accounts for
29% of the level of turnover observed in the data and 22% of the volatility. The
asynchronous relationship observed between turnover and output is puzzling.
Keywords. Asset trade, dynamically complete markets, time- and wealth-varying
risk aversion, production economies.
JEL classification. E32, G12.

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