Asia School of Business

Edit Content

Akepanidtaworn, Klakow, Gabriela Antonie and Triwit Ariyathugun

August 29, 2023

We study how the costly portfolio adjustments affect the consumption-investment decision of household investors. Investors have the Epstein and Zin (1989) utility over consumption, which allows for understanding how the elasticity of intertemporal substitution (EIS) and the degree of relative risk aversion separately determine the decision and the inattention span. We find that the EIS which governs the short-run consumption profile is a dominant factor that controls the inattention span. Moreover, given certain EIS’s, investors may rebalance their portfolios less frequently when they are more risk averse, which is surprising given their preference for an early resolution of uncertainty.