Investment Portfolio Liquidity Risk Management

Michael Ha, Lihui Zheng, Danny Lo and Alexis Suen

International Journal of Financial Markets, 2016, vol. 2, issue 1, 1-5

Abstract: Liquidity risk of an investment portfolio refers to the risk associated with the loss of value in a trade transaction. When fund assets are liquidated, there is a certain level of loss in asset value due to price volatility. The price at which a trade is executed is not identically the same as that targetted by an asset owner. Investors are exposed to liquidity risk when they purchase or redeem their units or holdings. Liquidity risk depends on two factors: liquidity supply and liquidity demand. This paper is mainly on the measurement of liquidity risk of investment portfolios. Our research work uses a distribution function to measure the cumulative effect of liquidity of individual stocks.

Keywords: Investment portfolio; liquidity risk; transcation; asset allocation. (search for similar items in EconPapers)
Date: 2016
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