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Liquidity Constraint for Portfolio Selection Models

Author

Listed:
  • Gabriel Matos Pereira

    (UFRGS)

  • Leonardo Riegel Sant'Anna

    (UFRGS)

  • Tiago Pascoal Filomena

    (UFRGS)

  • João Luiz Becker

    (UFRGS)

Abstract

Liquidity is an important issue in portfolio management. In 2012, the Brazilian market regulatory agency (CVM) started to require all banks and brokerages to maintain liquidity control of their portfolios. This study presents a liquidity constraint which is endogenously incorporated to portfolio optimization to Brazilian Financial Institutions. The proposed constraint incorporates endogenously some practical issues such as: portfolio value, monetary volume traded, maximum percentage of monetary value, liquidation term date and liquidation level. This constrain is applied to the Brazilian Stock Market. The selected constraint parameters have high influence on the liquidity level of the portfolio.

Suggested Citation

  • Gabriel Matos Pereira & Leonardo Riegel Sant'Anna & Tiago Pascoal Filomena & João Luiz Becker, 2015. "Liquidity Constraint for Portfolio Selection Models," Brazilian Review of Finance, Brazilian Society of Finance, vol. 13(2), pages 288-324.
    • Handle: RePEc:brf:journl:v:13:y:2015:i:2:p:288-324
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    More about this item

    Keywords

    portfolio management; liquidity; liquidity constraints;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G2 - Financial Economics - - Financial Institutions and Services

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