Download or read book Investment Decisions on Illiquid Assets written by Jaroslaw Morawski and published by Springer Science & Business Media. This book was released on 2009-02-14 with total page 467 pages. Available in PDF, EPUB and Kindle. Book excerpt: Jaroslaw Morawski offers a practicable and theoretically well-founded solution to the problems encountered when investing in illiquid assets and develops a model of the liquidation process for this category of investments. The result is a coherent investment decision framework designed specifically for private real estate but applicable also to other illiquid assets.
Download or read book Mastering Illiquidity written by Thomas Meyer and published by John Wiley & Sons. This book was released on 2013-06-10 with total page 309 pages. Available in PDF, EPUB and Kindle. Book excerpt: Arms investors with powerful new tools for measuring and managing the risks associated with the various illiquid asset classes With risk-free interest rates and risk premiums at record lows, many investors are turning to illiquid assets, such as real estate, private equity, infrastructure and timber, in search of superior returns and greater portfolio diversity. But as many analysts, investors and wealth managers are discovering, such investments bring with them a unique set of risks that cannot be measured by standard asset allocation models. Written by a dream team of globally renowned experts in the field, this book provides a clear, accessible overview of illiquid fund investments, focusing on what the main risks of these asset classes are and how to measure those risks in today's regulatory environment. Provides solutions for institutional investors in need of guidance in today's regulatory environment Offers detailed descriptions of risk measurement in illiquid asset classes, illustrated with real life case studies Helps you to develop reliable risk management tools while complying with the regulations designed to contain the individual and systemic risks arising from illiquid investments Features real-life case studies that capture an array of risk management scenarios you are likely to encounter
Download or read book Essays on the Risks and Returns of Illiquid Assets written by Spencer Couts and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three chapters that aim to understand the risks and returns of funds that invest in illiquid assets.
Download or read book Riding the Bubble written by Danny Yagan and published by . This book was released on 2014 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: Household investors chase stock market returns. Surveys suggest that households intend to "ride the bubble" by buying stocks early in a boom and selling stocks early in a bust. This implies that households use only liquid assets to chase returns. I test this prediction using inflows to fixed annuities--illiquid tax-preferred assets that lock wealth out of the stock market for five to ten years. I find that fixed annuity inflows spike after poor stock market returns, inconsistent with ride-the-bubble intentions and instead indicating buy-and-hold intentions. The results are consistent with households extrapolating recent stock market returns into the long run.
Download or read book Returns on Illiquid Assets written by John Krainer and published by . This book was released on 1997 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Portfolio Dynamics and Expected Returns Under Illiquidity written by Axel Buchner and published by . This book was released on 2015 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a novel continuous-time framework, this paper explores the effects of illiquidity on portfolio dynamics and expected returns. In summary, the paper makes three key contributions to the existing literature on asset pricing and illiquidity. First, it illustrates that illiquidity leads to portfolio proportions being stochastic processes. The numerical results highlight that investors should be prepared for potentially large and skewed variations in portfolio weights and can be away from optimal diversification for a long time when adding illiquid assets to a portfolio. The second contribution is to show that stochastic portfolio proportions implied by illiquidity increase overall portfolio risk. Interestingly, this effect gets more pronounced when the return correlation between the liquid and illiquid asset is low. Thus, there is a correlation effect in the sense that illiquidity costs, as measured by the increase in overall portfolio risk due to portfolio proportions being stochastic, are inversely related to the return correlation of the liquid and illiquid asset. Third, the paper explores the asset pricing implications of stochastic portfolio proportions. The derived valuation framework shows that the required excess returns of a portfolio can be split into two covariance terms: the first covariance term captures standard market risk, whereas the second term can be interpreted as a required compensation for a form of liquidity risk. This required compensation for liquidity risk increases linearly with the covariance between the proportion invested illiquid in the portfolio and the proportion invested illiquid in the market portfolio, i.e., investors want to be compensated for holding portfolios that become illiquid when the market in general turns illiquid.
Download or read book Illiquid Asset Investing written by Andrew Ang and published by . This book was released on 2013 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: After taking into account biases induced by infrequent trading and selection, it is unlikely that illiquid asset classes have higher risk-adjusted returns than traditional liquid stock and bond markets. On the other hand, there are significant illiquidity premiums within asset classes. Portfolio choice models incorporating illiquidity risk recommend only modest holdings of illiquid assets. Investors should demand high risk premiums for investing in illiquid assets.
Download or read book Reconsidering Asset Allocation Involving Illiquid Assets written by Dan Cao and published by . This book was released on 2008 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: Alternative assets are gaining increasing importance in investor's portfolios. One of their defining characteristic is their poor liquidity which often translates into an inherent smoothing process of the returns. For asset allocation purposes, this feature has to be seriously addressed as it leads to a severe underestimation of the variance of returns and their correlation with other (standard) assets. In this article, in order to deal with practical issues, we extend previous researches which model the smoothing process as a moving average one in several directions: (i) we propose a correction for the case of numerous illiquid assets; (ii) we investigate the implications of the standard practice of fitting autoregressive models in place of moving average models for the correction of the returns variance; (iii) we provide generalization to the case where the returns process is jointly governed by smoothing and true (economically) time-dependent behaviour. All the theoretical results are illustrated empirically with applications to US real estate and venture capital indexes.
Download or read book Managing Illiquid Assets written by Savita Verma and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The perspectives of experts and practitioners are brought together on managing these high-risk, and frequently complex, financial assets.
Download or read book Asset Pricing in Markets with Illiquid Assets written by Francis A. Longstaff and published by . This book was released on 2005 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many important classes of assets are illiquid in the sense that they cannot always be traded immediately. Thus, a portfolio position in these types of illiquid investments becomes at least temporarily irreversible. We study the asset-pricing implications of illiquidity in a two-asset exchange economy with heterogeneous agents. In this market, one asset is always liquid. The other asset can be traded initially, but then not again until after a quot;blackoutquot; period. Illiquidity has a dramatic effect on optimal portfolio decisions. Agents abandon diversification as a strategy and choose highly polarized portfolios instead. The value of liquidity can represent a large portion of the equilibrium price of an asset. We present examples in which a liquid asset can be worth up to 25 percent more than an illiquid asset even though both have identical cash flow dynamics. We also show that the expected return and volatility of an asset can change significantly as the asset becomes relatively more liquid.
Download or read book Liquidity and Asset Prices written by Yakov Amihud and published by Now Publishers Inc. This book was released on 2006 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: Liquidity and Asset Prices reviews the literature that studies the relationship between liquidity and asset prices. The authors review the theoretical literature that predicts how liquidity affects a security's required return and discuss the empirical connection between the two. Liquidity and Asset Prices surveys the theory of liquidity-based asset pricing followed by the empirical evidence. The theory section proceeds from basic models with exogenous holding periods to those that incorporate additional elements of risk and endogenous holding periods. The empirical section reviews the evidence on the liquidity premium for stocks, bonds, and other financial assets.
Download or read book Segmentation Illiquidity and Returns written by Renato Staub and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: When investing in alternative assets, such as private equity or natural resources - which may be locked-up for prolonged periods of time - the question of compensation for illiquidity becomes important. No rational investor will choose the illiquid over the liquid asset unless he gets compensated for his loss of flexibility. We derive two approaches to model illiquidity compensation. In contrast to the ones most commonly seen in the literature, our methods do not analyze trading-based gains, which cannot be realized as a result of illiquidity. Rather, we investigate the implications of illiquidity for a long-term investor.
Download or read book A New Approach of Valuing Illiquid Asset Portfolios written by Liang Peng and published by . This book was released on 2001 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a new approach of valuing portfolios that contain illiquid assets. The approach has three major advantages. First, the estimators are arithmetic averages of individual asset returns or their proxies, so they strictly correspond to actual portfolio returns. Second, the approach is able to value portfolios in which assets are arbitrarily weighted, including equal-weighted, price-weighted and value-weighted portfolios. Third, the model is easy to extend to incorporate asset characteristic data to improve the accuracy. Simulations with actual data of Dow Jones Industrials show that this new approach provides superior estimators than some currently available alternatives.
Download or read book Market Liquidity written by Yakov Amihud and published by Cambridge University Press. This book was released on 2013 with total page 293 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book explores the effect of liquidity on asset prices, liquidity variations over time and how liquidity risk affects prices.
Download or read book The Illiquidity Discount of Life Insurance Investments written by Ruth Kümmerle and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We incorporate an illiquid life insurance investment in the multi-period investment strategy of an investor with constant relative risk aversion and independent and identically distributed returns. In our setup, the liquid and the illiquid assets are risky and correlated and the illiquid investment cannot be rebalanced. We calculate the illiquidity discount as the difference in certainty equivalent rates of return between the optimal strategy with all assets being rebalanced in each period and the strategy with the illiquid investment. Calibrating our model to data of the German market we find a negative relationship between the level of risk aversion and the illiquidity discount when the investor does not rebalance at all. However, when the investor rebalances his liquid assets in each period to hedge against the illiquid investment the illiquidity discount becomes economically negligible.
Download or read book Where Experience Matters written by Adrian Buss and published by . This book was released on 2015 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: Alternative assets, such as private equity, hedge funds, and real assets, are illiquid and opaque, and thus pose a challenge to traditional models of asset allocation. In this paper, we study asset allocation and asset pricing in a general-equilibrium model with liquid assets and an alternative risky asset, which is opaque and incurs transaction costs, and investors who differ in their experience in assessing the alternative asset. We find that the optimal asset-allocation strategy of the relatively inexperienced investors is to initially tilt their portfolio away from the alternative asset and to hold more of it with experience. Counterintuitively, a decrease in the transaction cost for the alternative asset increases the portfolio tilt at the initial date, and hence, the liquidity discount. Transaction costs may induce inexperienced investors to hold a majority of the illiquid asset at later dates, even if they are pessimistic about future payoffs, and produce a sizable liquidity discount. During periods when the alternative asset is illiquid, investors trade the liquid equity index instead, leading to strong spillover effects.
Download or read book Illiquidity Premium Transaction Costs and Risks of Illiquid Assets written by Ben Meng and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Liquidity has long been a great interest to investment professionals as well as academic researchers. The estimation of illiquidity premium for infrequently traded asset classes, such as real estate and private equity, presents a challenge to the industry because of opaque information and sporadic trading activities. We propose to use autocorrelations of return series as a tool to estimate the transaction costs and illiquidity premium of private assets. This tool can also be used to adjust the risk of illiquid asset classes so that private and illiquid assets can be reasonably compared with public and liquid assets. We also show that this metric could have implications for understanding the delay between transaction decision and transaction execution, known to market participants as time-on-market.
