Abstract
This paper analyzes the counter-cyclical behavior of asset trading volume and the effect of idiosyncratic income to trading decisions of households. The model is in the class of DSGE models with incomplete markets. The paper makes two contributions: firstly, a structural break in trading volume is identified which shows a change in the cyclical relationship of asset trading and aggregate output. Secondly, the model is able to reproduce the cyclical relationship through variations in idiosyncratic labor income risk. The paper is able to match the direction of trade as well as a portion of the trading volume dispersion.
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