Before revision: We study equilibrium returns in a continuous-time model where heterogeneous mean-variance investors trade subject to quadratic transaction costs. The unique equilibrium is characterized by a system of coupled but linear forward-backward stochastic differential equations.
After revision: We study equilibrium returns in a continuous-time model where heterogeneous mean-variance investors trade subject to a quadratic transaction cost. The corresponding equilibrium is characterized by a system of coupled but linear forward-backward stochastic differential equations.