Liquidity Risk of Private Assets: Evidence from Real Estate Markets

26 Pages Posted: 11 Oct 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: November 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 (November 2013). Financial Review, Vol. 48, Issue 4, pp. 671-696, 2013, Available at SSRN: https://ssrn.com/abstract=2338854 or http://dx.doi.org/10.1111/fire.12020

Ping Cheng (Contact Author)

Florida Atlantic University - Finance ( email )

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

Zhenguo Lin

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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