Where Experience Matters: Asset Allocation and Asset Pricing with Opaque and Illiquid Assets

Adrian Buss, Raman Uppal, Grigory Vilkov: Alternative assets, such as private equity, hedge funds, and real assets, are illiquid and opaque, and thus pose a challenge to traditional models of asset allocation.

Auteur(s) :

Adrian Buss

INSEAD

Raman Uppal

Edhec Business School and CEPR

Grigory Vilkov

Goethe University Frankfurt

Présentation :

In this paper, we study asset allocation and asset pricing in a general-equilibrium model with liquid assets and an alternative risky asset, which is opaque and incurs transaction costs, and investors who differ in their experience in assessing the alternative asset. We find that the optimal asset-allocation strategy of the relatively inexperienced investors is to initially tilt their portfolio away from the alternative asset and to hold more of it with experience. Counterintuitively, a decrease in the transaction cost for the alternative asset increases the portfolio tilt at the initial date, and hence, the liquidity discount. Transaction costs may induce inexperienced investors to hold a majority of the illiquid asset at later dates, even if they are pessimistic about future payoffs, and produce a sizable liquidity discount. During periods when the alternative asset is illiquid, investors trade the liquid equity index instead, leading to strong spillover effects.
Pdf
Where Experience Matters: Asset Allocation and Asset Pricing with Opaque and Ill...
(3.25 MB)
Type : Working paper
Date : le 02/02/2015
Complément d'informations For more information, please contact EDHEC Research and Development Department [ research@drd.edhec.edu ]
Pôle de recherche Finance

A voir également

- 11-07-2017
Après avoir exploré la multiculturelle Kuala Lumpur en janvier, les participants de l’Executive MBA de l’EDHEC de Lille et Paris se sont envolés pour un business trip à San Francisco, du 19...
EDHEC Business School s’affirme comme leader en entrepreneuriat
- 03-07-2017
Le Financial Times publie aujourd’hui le classement des meilleurs Global MBA en...
Une inauguration réussie de Station F en presence d’Emmanuel Macron et de l’EDHEC
- 29-06-2017
L’EDHEC a annoncé en mai dernier avoir rejoint Station F, le plus grand campus de start...
Classement Financial Times: #1 Master en Finance dans le monde
- 19-06-2017
EDHEC, 1er Master en Finance dans le monde selon le Financial Times dans son classement...