Portfolio Choice with Illiquid Assets

Koren, Miklós and Adam Szeidl

No 3795, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Asset pricing; Liquidity; Portfolio choice; Calibration (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2003-02
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-rmg
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Citations: View citations in EconPapers (3)

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Working Paper: Portfolio Choice with Illiquid Assets (2002)
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