Optimal Liquidation of Venture Capital Stakes
We model the optimal liquidation behavior of a venture capital or non-diversified asset management firm faced with a sale of concentrated security holdings. As the firm?s stake is large, its sales can lead to permanent and temporary price depressions. At the optimum, the institution chooses the liquidation interval to balance the exposure to the market return variance against the impact of its own sales on the realized return. We obtain closed-form solutions for power impact functions uncorrelated with returns. We also consider market impact correlated with the return process, i.e. a case where liquidity evaporates during severe price dislocations.
Volume (Year): 7 (2002)
Issue (Month): 2 (Summer)
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- Chan, Louis K C & Lakonishok, Josef, 1995. " The Behavior of Stock Prices around Institutional Trades," Journal of Finance, American Finance Association, vol. 50(4), pages 1147-74, September.
- Holthausen, Robert W. & Leftwich, Richard W. & Mayers, David, 1990. "Large-block transactions, the speed of response, and temporary and permanent stock-price effects," Journal of Financial Economics, Elsevier, vol. 26(1), pages 71-95, July.
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