Portfolio choice with illiquid assets.

    Research output: Working paper/PreprintWorking paper

    Abstract (may include machine translation)

    The present Paper investigates the effects of incorporating illiquidity in a standard dynamic portfolio choice problem. Lack of liquidity means that an asset cannot be immediately traded at any point in time. We find the portfolio share of financial wealth invested in illiquid assets given the liquidity premium. Benchmark calibrations imply a portfolio share of 2-6% in cash. These numbers are in line with survey data and also with portfolio recommendations by practitioners. We also find that long horizon investors invest more in illiquid assets. Overall, our results suggest that differences between asset classes unrelated to standard price risk may influence portfolio shares.
    Original languageEnglish
    Place of PublicationLondon
    PublisherCentre for Economic Policy Research (CEPR)
    StatePublished - 2003

    Publication series

    NameCEPR Discussion Papers, 3795

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