Asset Prices in General Equilibrium with Transactions Costs and Recursive Utility

This paper studies the effect of proportional transactions costs on asset prices and liquidity premia in a general equilibrium economy with multiple agents who are heterogeneous. The agents in the model have Epstein-Zin-Weil utility functions and can be heterogeneous with respect to endowments and all three characteristics of their utility functions—time preference, risk aversion, and elasticity of intertemporal substitution.