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Investment Portfolio Liquidity Risk Management

Author

Listed:
  • Michael Ha
  • Lihui Zheng
  • Danny Lo
  • Alexis Suen

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.

Suggested Citation

  • Michael Ha & Lihui Zheng & Danny Lo & Alexis Suen, 2016. "Investment Portfolio Liquidity Risk Management," International Journal of Financial Markets, Research Academy of Social Sciences, vol. 2(1), pages 1-5.
    • Handle: RePEc:rss:jnljfm:v2i1p1
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    References listed on IDEAS

    as
    1. Nanda, Vikram & Narayanan, M. P. & Warther, Vincent A., 2000. "Liquidity, investment ability, and mutual fund structure," Journal of Financial Economics, Elsevier, vol. 57(3), pages 417-443, September.
    2. Hisata, Yoshifumi & Yamai, Yasuhiro, 2000. "Research toward the Practical Application of Liquidity Risk Evaluation Methods," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 18(2), pages 83-127, December.
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    Cited by:

    1. World Bank, 2017. "Demystifying Forest Bonds," World Bank Publications - Reports 28587, The World Bank Group.

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