Abstract

http://ssrn.com/abstract=1817522
 
 

Citations (6)



 


 



Portfolio Choice with Illiquid Assets


Andrew Ang


Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Dimitris Papanikolaou


Northwestern University - Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER)

Mark M. Westerfield


University of Washington

October 24, 2010

Netspar Discussion Paper No. 10/2010-092

Abstract:     
We solve for optimal asset allocation and consumption policies for long-lived constant relative risk averse (CRRA) investors holding both liquid and illiquid assets. Liquid assets can be rebalanced continuously, whereas illiquid assets can only be traded at infrequent, stochastic intervals. By creating an unhedgeable source of risk, illiquidity induces additional time-varying risk aversion above the constant utility coefficient of risk aversion. Illiquidity risk affects the asset allocation of both liquid and illiquid securities and causes optimal consumption and portfolio policies to depend on the mix of illiquid and liquid assets in the investor’s portfolio. Illiquidity effects are observed even for log utility investors and when liquid and illiquid asset returns are uncorrelated.

Number of Pages in PDF File: 50

Keywords: asset allocation, liquidity, alternative assets, endowment model

JEL Classification: G11, G12

working papers series


Download This Paper

Date posted: April 22, 2011  

Suggested Citation

Ang, Andrew and Papanikolaou, Dimitris and Westerfield, Mark M., Portfolio Choice with Illiquid Assets (October 24, 2010). Netspar Discussion Paper No. 10/2010-092. Available at SSRN: http://ssrn.com/abstract=1817522 or http://dx.doi.org/10.2139/ssrn.1817522

Contact Information

Andrew Ang (Contact Author)
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Dimitris Papanikolaou
Northwestern University - Kellogg School of Management - Department of Finance ( email )
Evanston, IL 60208
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Mark M. Westerfield
University of Washington ( email )
Box 353200
Seattle, WA 98195
United States
HOME PAGE: http://www.markwesterfield.com
Feedback to SSRN


Paper statistics
Abstract Views: 642
Downloads: 127
Download Rank: 10,728
Citations:  6

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.437 seconds