Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JPM
    • Awards
    • Editorial Board
    • Published Ahead of Print (PAP)
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

User menu

  • Sample our Content
  • Request a Demo
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Portfolio Management
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Request a Demo
  • Log in
The Journal of Portfolio Management

The Journal of Portfolio Management

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JPM
    • Awards
    • Editorial Board
    • Published Ahead of Print (PAP)
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

Liquidity and Portfolio Choice: A Unified Approach

Will Kinlaw, Mark Kritzman and David Turkington
The Journal of Portfolio Management Winter 2013, 39 (2) 19-27; DOI: https://doi.org/10.3905/jpm.2013.39.2.019
Will Kinlaw
is senior managing director of State Street Associates in Cambridge, MA.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: wbkinlaw@statestreet.com
Mark Kritzman
is president and CEO of Windham Capital Management, and he teaches at MIT Sloan School in Cambridge, MA.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: kritzman@mit.edu
David Turkington
is managing director of State Street Associates in Cambridge, MA.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: dturkington@statestreet.com
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Click to login and read the full article.

Don’t have access? Click here to request a demo 
Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
EMEA: +44 0207 139 1600

Abstract

The authors propose a simple analytical construct for incorporating liquidity into portfolio choice. In cases where investors deploy liquidity to raise a portfolio’s expected utility beyond its original expected utility, the authors attach a shadow asset to tradable assets. In cases where investors deploy liquidity to prevent a portfolio’s expected utility from falling, the authors attach a shadow liability to assets that are not tradable. This construct lets investors determine the optimal allocation to illiquid assets. Alternatively, investors can use this construct to estimate the premium an illiquid asset requires, or the degree to which they must benefit from liquidity in order to justify forgoing investment in illiquid assets. This approach improves on other methods of incorporating liquidity into portfolio choice in four fundamental ways. First, it mirrors what actually occurs within a portfolio. Second, it maps units of liquidity onto units of expected return and risk, so that investors can analyze liquidity within the same context as other portfolio decisions. Third, it distinguishes absolute illiquidity from partial illiquidity and lets investors address these attributes within a single, unifying framework. Fourth, it recognizes that liquidity serves not only to meet demands for capital, but to exploit opportunities as well, thus revealing that investors bear an illiquidity cost to the extent that any fraction of a portfolio is immobile.

TOPICS: Portfolio construction, passive strategies, statistical methods

  • © 2013 Pageant Media Ltd
View Full Text

Don’t have access? Click here to request a demo

Alternatively, Call a member of the team to discuss membership options

US and Overseas: +1 646-931-9045

UK: 0207 139 1600

Log in using your username and password

Forgot your user name or password?
PreviousNext
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Portfolio Management: 39 (2)
The Journal of Portfolio Management
Vol. 39, Issue 2
Winter 2013
  • Table of Contents
  • Index by author
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Portfolio Management.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Liquidity and Portfolio Choice: A Unified Approach
(Your Name) has sent you a message from The Journal of Portfolio Management
(Your Name) thought you would like to see the The Journal of Portfolio Management web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
Liquidity and Portfolio Choice: A Unified Approach
Will Kinlaw, Mark Kritzman, David Turkington
The Journal of Portfolio Management Jan 2013, 39 (2) 19-27; DOI: 10.3905/jpm.2013.39.2.019

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Liquidity and Portfolio Choice: A Unified Approach
Will Kinlaw, Mark Kritzman, David Turkington
The Journal of Portfolio Management Jan 2013, 39 (2) 19-27; DOI: 10.3905/jpm.2013.39.2.019
del.icio.us logo Digg logo Reddit logo Twitter logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
    • Abstract
    • RELATED LITERATURE
    • BENEFITS OF LIQUIDITY
    • ABSOLUTE VERSUS PARTIAL ILLIQUIDITY
    • ANALYTICAL CONSTRUCT
    • PERFORMANCE FEES AND MULTIPLE FUNDS
    • CASE STUDY
    • SUMMARY
    • ENDNOTES
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • Asset Allocation and Private Market Investing
  • Fitting Private Equity into the Total Portfolio Framework
  • Persistence of Hedge Fund Returns and Fee-Aware Portfolio Construction
  • Measuring Liquidity Premiums for Illiquid Assets
  • Forced Liquidations, Fire Sales, and the Cost of Illiquidity
  • Forced Liquidations, Fire Sales, and the Cost of Illiquidity
  • The Components of Private Equity Performance: Implications for Portfolio Choice
  • A Penalty Cost Approach to Strategic Asset Allocation with Illiquid Asset Classes
  • The Divergence of High- and Low-Frequency Estimation: * Causes and Consequences
  • Google Scholar
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

MORE FROM PMR

  • News
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Sign In
  • Update your profile
  • Give us your feedback

© 2022 Pageant Media Ltd | All Rights Reserved | ISSN: 0095-4918 | E-ISSN: 2168-8656

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies