Decision Frequency and Synchronization Across Agents: Implications for Aggregate Consumption and Equity Return



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    • New York University. This article is a revision of a chapter from my PhD thesis at the University of Chicago. My committee members, John Cochrane, Kent Daniel, Eugene Fama, Ken French, Lars Hansen, and especially my chairman George Constantinides are thanked for their comments and encouragement. Pierluigi Balduzzi, Kobi Boudoukh, Steve Davis, Ned Elton, Antti Ilmanen, Johnny Liew, Guillermo Mondino, Matthew Richardson, Thomas Sargent, Robert Whitelaw, and participants at workshops at the University of Chicago, Duke University, University of Illinois at Champaign, Ohio State University, Harvard University, UCLA, University of Southern California, University of Texas at Austin, and New York University provided many helpful comments. The referee and René Stulz, the editor, are thanked for comments that greatly improved the exposition of the article. All remaining errors are mine.


This article examines a model in which decisions are made at fixed intervals and are unsynchronized across agents. Agents choose nondurable consumption and portfolio composition, and either or both can be chosen infrequently. A small utility cost is associated with both decisions being made infrequently. Calibrating returns to the U.S. economy, less frequent and unsynchronized decision-making delivers the low volatility of aggregate consumption growth and its low correlation with equity return found in U.S. data. Allowing portfolio rebalancing to occur every period has a negligible impact on the joint behavior of aggregate consumption and returns.