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Asset ManagementA Systematic Approach to Factor Investing$
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Andrew Ang

Print publication date: 2014

Print ISBN-13: 9780199959327

Published to Oxford Scholarship Online: August 2014

DOI: 10.1093/acprof:oso/9780199959327.001.0001

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Illiquid Assets

Illiquid Assets

Chapter:
(p.410) Chapter 13 Illiquid Assets
Source:
Asset Management
Author(s):

Andrew Ang

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199959327.003.0013

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. However, there are significant illiquidity premiums within asset classes. Portfolio choice models incorporating illiquidity risk recommend that investors should retain only modest holdings of illiquid assets and demand high risk premiums for investing in them.

Keywords:   liquidity premium, survivorship bias, infrequent trading, unsmoothing, de-smoothing, selection bias, illiquidity risk, liquidity crisis, market making, rebalancing, transaction costs, portfolio choice

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