Illiquid Asset Investing

Abstract

After taking into account biases induced by infrequent trading and selection, it is unlikely that illiquid asset classes have higher risk-adjusted returns than traditional liquid stock and bond markets. On the other hand, there are significant illiquidity premiums within asset classes. Portfolio choice models incorporating illiquidity risk recommend only modest holdings of illiquid assets. Investors should demand high risk premiums for investing in illiquid assets.