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Eleccion De Portafolio En Presencia De Mercados Iliquidos

Author

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  • LUIS FELIPE VARAS GREENE

    (Escuela de Administración, Pontificia Universidad Católica de Chile)

Abstract

This paper addresses the portfolio selection of an investor facing illiquid markets and analyzes what the portfolio choice would be if the investor were unable to trade at all times. It is assumed that the investor can only trade at some intervals of time with an exponential distribution. In this setting, a new dimension of risk is added owing to the impossibility of modifying the portfolio. Finally, for a reasonable set of parameters, the portfolio choice model is able to rationalize the liquidity premium reported in the previous empirical literature.

Suggested Citation

  • Luis Felipe Varas Greene, 2006. "Eleccion De Portafolio En Presencia De Mercados Iliquidos," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 9(2), pages 79-97.
    • Handle: RePEc:pch:abante:v:9:y:2006:i:2:p:79-97
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    File URL: http://www.abante.cl/files/ABT/Contenidos/Vol-9-N2/Varas.pdf
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    More about this item

    Keywords

    Portfolio Choice; Liquidity;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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