Asset Allocation and Liquidity Breakdowns: What if Your Broker Does not Answer the Phone?
ثبت نشده
چکیده
This paper analyzes the portfolio decision of an investor facing the threat of illiquidity. In a continuous-time setting, the efficiency loss due to illiquidity is addressed and quantified. We show that the efficiency loss for a logarithmic investor with 30 years until the investment horizon is a significant 22.7% of current wealth if the illiquidity part of the model is calibrated to the Japanese data of the aftermath of WW II. Furthermore, it is demonstrated that the threat of illiquidity can change the demand for risky securities tremendously and that a logarithmic investor will not behave myopically anymore.
منابع مشابه
Asset allocation and liquidity breakdowns: what if your broker does not answer the phone?
This paper analyzes the portfolio decision of an investor facing the threat of illiquidity. In a continuous-time setting, the efficiency loss due to illiquidity is addressed and quantified. For a logarithmic investor, we solve the portfolio problem explicitly. We show that the efficiency loss for a logarithmic investor with 30 years until the investment horizon is a significant 22.7% of current...
متن کاملEffect of Asset and Liability management on Liquidity risk of Iranian Banks
In financial markets, the main component of risk management is liquidity risk. Asset and Liability Management (ALM) strategy is concerned with managing all risks. Asset and liability management seeks to manage liquidity risk, which refers to both the liquidity of markets and which assets can be translated into cash. The liquidity is importantly affected by the management of banks’ balance sheet...
متن کاملInside and Outside Liquidity∗
We consider a model of liquidity demand arising from a possible maturity mismatch between asset revenues and consumption. This liquidity demand can be met with either cash reserves (inside liquidity) or via asset sales for cash (outside liquidity). The questions we address are: (a) what determines the mix of inside and outside liquidity in equilibrium? (b) does the market provide an efficient m...
متن کاملIlliquidity and All Its Friends1
The recent crisis was characterized by massive illiquidity. This paper reviews what we know and don't know about illiquidity and all its friends: market freezes, fire sales, contagion, and ultimately insolvencies and bailouts. It first explains why liquidity cannot easily be apprehended through a single statistic, and asks whether liquidity should be regulated given that a capital adequacy requ...
متن کاملIlliquidity and All Its Friends
The recent crisis was characterized by massive illiquidity. This paper reviews what we know and don't know about illiquidity and all its friends: market freezes, fire sales, contagion, and ultimately insolvencies and bailouts. It first explains why liquidity cannot easily be apprehended through a single statistics, and asks whether liquidity should be regulated given that a capital adequacy req...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
دوره شماره
صفحات -
تاریخ انتشار 2007