search query: @author Longstaff, F. A. / total: 9
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| Author: | Longstaff, F. A. |
| Title: | Optimal Portfolio Choice and the Valuation of Illiquid Securities |
| Journal: | Review of Financial Studies
2001 : SUMMER, VOL. 14:2, p. 407-432 |
| Index terms: | FINANCE OPTIMIZATION PORTFOLIO MANAGEMENT VALUATION |
| Language: | eng |
| Abstract: | Traditional models of portfolio choice assume that investors can continuously trade unlimited amounts of securities. In reality, investors face liquidity constraints The author analyzes a model where investors are restricted to trading strategies that are of bounded variation. An investor facing this type of illiquidity behaves very differently from an unconstrained investor. A liquidity-constrained investor endogenously acts as if facing borrowing and short-selling constraints, and one may take riskier positions than in liquid markets. The author solves for the shadow cost of illiquidity and shows that large price discounts can be sustained in a rational model. |
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