  We study how transaction cost affects to the equilibrium return and optimal
stock holdings in equilibrium. To this end, we develop a continuous-time
risk-sharing model where heterogenous agents trade toward terminal target
holdings subject to a quadratic transaction cost. The equilibrium stock
holdings and trading rate under transaction cost are characterized by a unique
solution to a forward-backward stochastic differential equation (FBSDE). The
equilibrium return is also characterized as the unique solution of a system of
coupled but linear FBSDEs.
