Liquid Co-Illiquidity Management
59 Pages Posted: 14 Oct 2022
We study the link between illiquidity and co-movement in illiquidity and the way asset managers trade off illiquidity and co-illiquidity in their portfolio allocation decision. By exploring two experiments – the 2005 SHO Regulation and the 2008 short selling ban – we document that in the face of sudden illiquidity shocks, short-term investors are willing to accept higher portfolio co-illiquidity to circumvent an increase in their holdings’ illiquidity.
Keywords: Short-sales constraints, liquidity, commonality
Suggested Citation: Suggested Citation