Equilibrium Policy Portfolios When Some Assets are Non-Tradable

35 Pages Posted: 9 Jan 2019 Last revised: 31 Jan 2019

See all articles by Otto Randl

Otto Randl

WU Vienna University of Economics and Business

Arne Westerkamp

Vienna University of Economics and Business - Department of Accounting and Finance

Josef Zechner

Vienna University of Economics and Business

Date Written: December 27, 2018

Abstract

Asset managers usually define a policy portfolio to provide a long-term benchmark. According to the CAPM, the policy portfolio should be the value weighted market portfolio of all assets. However, the practical implementation of such a policy portfolio is not straightforward. First, it is non-trivial to determine the market value weights of tradable assets. Second, even if one ignores human capital as a component of the market portfolio, there are large parts of the asset universe which are difficult to trade, such as non-listed equity. While some investors are endowed with such illiquid assets or are able to pay the (fixed) costs associated with accessing them, other investors are effectively precluded from holding such assets. In this paper we analyze the equilibrium effects of non-tradable assets on optimal policy portfolios. We find that the existence of non-tradable assets implies that investors do not hold the market portfolio. Investors with (without) access to non-tradable assets tilt their portfolios away from (towards) assets to which non-tradable assets exhibit positive betas.

Keywords: asset allocation, policy portfolios, non-tradable assets

JEL Classification: G11

Suggested Citation

Randl, Otto and Westerkamp, Arne and Zechner, Josef, Equilibrium Policy Portfolios When Some Assets are Non-Tradable (December 27, 2018). Available at SSRN: https://ssrn.com/abstract=3307065 or http://dx.doi.org/10.2139/ssrn.3307065

Otto Randl (Contact Author)

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, 1020
Austria
+ 43 1 313 36 - 5076 (Phone)

Arne Westerkamp

Vienna University of Economics and Business - Department of Accounting and Finance ( email )

Nordbergstra├če 15, Bauteil B, 6. Stock
Wien 1090
Austria

Josef Zechner

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien A-1019
Austria

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
57
Abstract Views
468
rank
422,184
PlumX Metrics