TY - JOUR T1 - Illiquidity and Portfolio Risk of Thinly Traded Assets JF - The Journal of Portfolio Management SP - 126 LP - 138 DO - 10.3905/JPM.2010.36.2.126 VL - 36 IS - 2 AU - Ping Cheng AU - Zhenguo Lin AU - Yingchun Liu Y1 - 2010/01/31 UR - https://pm-research.com/content/36/2/126.abstract N2 - This article addresses two major issues with the current practice of real estate investment analysis: 1) applying finance theory without modification and 2) ignoring illiquidity in formal analysis.The authors develop a new, closedform ex ante risk metric that quantifies illiquidity risk and integrates it with real estate price risk.Such integration provides a formal and easy-to-use analytical tool for real estate pricing and enables an apples-to-apples comparison between the performances of real estate and financial assets. Using commercial real estate data, the authors demonstrate that the conventional risk measure significantly understates the true risk of real estate.Their results also reveal the relative importance of price and illiquidity risk components to the total ex ante risk.TOPICS: Real estate, analysis of individual factors/risk premia, risk management ER -