Cornell University
Library
Cornell UniversityLibrary

eCommons

Help
Log In(current)
  1. Home
  2. Cornell Peter and Stephanie Nolan School of Hotel Administration
  3. School of Hotel Administration Collection
  4. SHA Articles and Chapters
  5. Liquidity: Considerations of a Portfolio Manager

Liquidity: Considerations of a Portfolio Manager

File(s)
Moulton8_Liquidity.pdf (105.58 KB)
Permanent Link(s)
https://hdl.handle.net/1813/72531
Collections
SHA Articles and Chapters
Author
Simon Hodrick, Laurie
Moulton, Pamela
Abstract

This paper examines liquidity and how it affects the behavior of mutual fund portfolio managers, who account for a significant portion of trading in many assets. We define an asset to be perfectly liquid if a portfolio manager can trade the quantity she desires when she desires at a price not worse than the uninformed expected value. A portfolio manager is limited by both what she needs to attain and the ease with which she can attain it, making her sensitive to three dimensions of liquidity: price, timing, and quantity. Deviations from perfect liquidity in any of these dimensions impose shadow costs on the portfolio manager. By focusing on the trade-off between sacrificing on price and quantity instead of the canonical price-time trade-off, the model yields several novel empirical implications. Understanding a portfolio manager's liquidity considerations provides important insights into the liquidity of assets and asset classes.

Date Issued
2007-08-29
Keywords
mutual funds
•
liquidity
•
active and passive portfolio management
Related DOI
https://doi.org/10.1111/j.1755-053X.2009.01028.x
Rights
Required Publisher Statement: © Wiley-Blackwell. Final version published as: Simon Hodrick, L., & Moulton, P. C. (2009). Liquidity: Considerations of a portfolio manager. Financial Management, 38(1), 59-74. Reprinted with permission. All rights reserved.
Type
article

Site Statistics | Help

About eCommons | Policies | Terms of use | Contact Us

copyright © 2002-2026 Cornell University Library | Privacy | Web Accessibility Assistance