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

Ping Cheng

Florida Atlantic University - Finance

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

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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

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

Ping Cheng

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States
561-297-3456 (Phone)
561-297-3686 (Fax)

Zhenguo Lin (Contact Author)

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

Miami, FL 33199
United States
3057799248 (Phone)

Yingchun Liu

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

1155 Union Circle #305340
Denton, TX 76203
United States

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