@article {Xiong102, author = {James X. Xiong and Rodney N. Sullivan and Peng Wang}, title = {Liquidity-Driven Dynamic Asset Allocation}, volume = {39}, number = {3}, pages = {102--111}, year = {2013}, doi = {10.3905/jpm.2013.39.3.102}, publisher = {Institutional Investor Journals Umbrella}, abstract = {The authors propose a model of portfolio selection that adjusts an investor{\textquoteright}s portfolio allocation in accordance with changing market conditions and liquidity environments. They found that market liquidity provides a useful leading indicator in dynamic asset allocation. Specifically, market-liquidity risk-premium cycles anticipate economic and market cycles. Investors can therefore avoid markets with low liquidity premiums, waiting for more favorable circumstances to extract liquidity risk premiums. The result meaningfully enhanced portfolio performance through economic and market cycles, and is robust to transactions costs and alternate specifications.TOPICS: Portfolio construction, factor-based models, in markets}, issn = {0095-4918}, URL = {https://jpm.pm-research.com/content/39/3/102}, eprint = {https://jpm.pm-research.com/content/39/3/102.full.pdf}, journal = {The Journal of Portfolio Management} }