E07: Liquidity and investment strategy

Document description

Liquid assets have an attraction for investors, because they provide more flexibility for changing investment strategy, are simple to value and can readily be turned into cash to pay capital providers. Andrew Smith and Grigory Spivak consider ways to quantify the liquidity requirements for a financial firm, and then use equilibrium arguments to model the extent to which markets may provide higher returns to reward investors in illiquid assets.