Liquidity Risk of Private Assets: Evidence from Real Estate Markets

Cheng, Ping; Lin, Zhenguo (Len); Liu, Yingchun

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Liquidity Risk of Private Assets: Evidence from Real Estate Markets

The Financial Review, Forthcoming

38 Pages Posted: 11 Feb 2013

See all articles by Ping Cheng

Zhenguo (Len) Lin

Florida International University (FIU) - Hollo School of Real Estate

Yingchun Liu

Dept. of Finance, Insurance, Real Estate and Law, University of North Texas

There are 2 versions of this paper

Date Written: February 1, 2013

Abstract

Investment in thinly-traded private assets involves liquidity risk. Existing literature provides limited guidance as it mainly focuses on publicly-traded security assets such as stocks and bonds. This paper develops an analytical tool for quantifying liquidity risk of private assets. Using commercial real estate as a model asset and under reasonable assumptions, we find that the magnitude of liquidity risk is too large to be ignored, especially in down markets when liquidity risk is a great concern.

Keywords: Illiquidity, Liquidity risk, Thinly-traded private asset

JEL Classification: G11, G32, R3

Suggested Citation: Suggested Citation

Cheng, Ping and Lin, Zhenguo and Liu, Yingchun, Liquidity Risk of Private Assets: Evidence from Real Estate Markets (February 1, 2013). The Financial Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2214387