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Author: Francis A. Longstaff Publisher: ISBN: Category : Languages : en Pages : 40
Book Description
Many important classes of assets are illiquid in the sense that they cannot always be traded immediately. Thus, a portfolio position in these types of illiquid investments becomes at least temporarily irreversible. We study the asset-pricing implications of illiquidity in a two-asset exchange economy with heterogeneous agents. In this market, one asset is always liquid. The other asset can be traded initially, but then not again until after a quot;blackoutquot; period. Illiquidity has a dramatic effect on optimal portfolio decisions. Agents abandon diversification as a strategy and choose highly polarized portfolios instead. The value of liquidity can represent a large portion of the equilibrium price of an asset. We present examples in which a liquid asset can be worth up to 25 percent more than an illiquid asset even though both have identical cash flow dynamics. We also show that the expected return and volatility of an asset can change significantly as the asset becomes relatively more liquid.
Author: Jaroslaw Morawski Publisher: Springer Science & Business Media ISBN: 3834999555 Category : Business & Economics Languages : en Pages : 467
Book Description
Jaroslaw Morawski offers a practicable and theoretically well-founded solution to the problems encountered when investing in illiquid assets and develops a model of the liquidation process for this category of investments. The result is a coherent investment decision framework designed specifically for private real estate but applicable also to other illiquid assets.
Author: Adrian Buss Publisher: ISBN: Category : Asset allocation Languages : en Pages : 58
Book Description
Alternative assets, such as private equity, hedge funds, and real assets, are illiquid and opaque, and thus pose a challenge to traditional models of asset allocation. In this paper, we study asset allocation and asset pricing in a general-equilibrium model with liquid assets and an alternative risky asset, which is opaque and incurs transaction costs, and investors who differ in their experience in assessing the alternative asset. We find that the optimal asset-allocation strategy of the relatively inexperienced investors is to initially tilt their portfolio away from the alternative asset and to hold more of it with experience. Counterintuitively, a decrease in the transaction cost for the alternative asset increases the portfolio tilt at the initial date, and hence, the liquidity discount. Transaction costs may induce inexperienced investors to hold a majority of the illiquid asset at later dates, even if they are pessimistic about future payoffs, and produce a sizable liquidity discount. During periods when the alternative asset is illiquid, investors trade the liquid equity index instead, leading to strong spillover effects.
Author: Yakov Amihud Publisher: Now Publishers Inc ISBN: 1933019123 Category : Business & Economics Languages : en Pages : 109
Book Description
Liquidity and Asset Prices reviews the literature that studies the relationship between liquidity and asset prices. The authors review the theoretical literature that predicts how liquidity affects a security's required return and discuss the empirical connection between the two. Liquidity and Asset Prices surveys the theory of liquidity-based asset pricing followed by the empirical evidence. The theory section proceeds from basic models with exogenous holding periods to those that incorporate additional elements of risk and endogenous holding periods. The empirical section reviews the evidence on the liquidity premium for stocks, bonds, and other financial assets.
Author: Dunhong Jin Publisher: International Monetary Fund ISBN: 1513519492 Category : Business & Economics Languages : en Pages : 46
Book Description
How to prevent runs on open-end mutual funds? In recent years, markets have observed an innovation that changed the way open-end funds are priced. Alternative pricing rules (known as swing pricing) adjust funds’ net asset values to pass on funds’ trading costs to transacting shareholders. Using unique data on investor transactions in U.K. corporate bond funds, we show that swing pricing eliminates the first-mover advantage arising from the traditional pricing rule and significantly reduces redemptions during stress periods. The positive impact of alternative pricing rules on fund flows reverses in calm periods when costs associated with higher tracking error dominate the pricing effect.
Author: Savita Verma Publisher: ISBN: 9781906348410 Category : Assets (Accounting) Languages : en Pages : 0
Book Description
The perspectives of experts and practitioners are brought together on managing these high-risk, and frequently complex, financial assets.
Author: Yakov Amihud
Author: Yakov Amihud
Author: John Robert Krainer
Author: Francis A. Longstaff
Author: Jaroslaw Morawski
Author: Patrick Frederik Albert Tuijp
Author: Adrian Buss
Author: Yakov Amihud
Author: Dunhong Jin
Author: Charles Milton Kahn
Author: Savita Verma