Investment Decisions on Illiquid Assets - A Search by Jaroslaw Morawski, Prof. Dr. Heinz Rehkugler

By Jaroslaw Morawski, Prof. Dr. Heinz Rehkugler

Actual property, deepest fairness, arts, or even wine are gaining expanding acceptance as capital investments. appealing risk-return profiles and excessive diversification potentials lead them to worthy additions to funding portfolios. Their major crisis, even if, is the low point of liquidity. Such resources can't be obtained or offered fast with no compromising huge parts in their worth. regardless of its excessive useful relevance, this factor has to this point obtained simply little realization from researchers.

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Extra resources for Investment Decisions on Illiquid Assets - A Search Theoretical Approach to Real Estate Liquidity

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These measures are largely a novel development and result from the combination of popular methods of investment risk measurement with the real estate search model. Finally, the last group of measures is discussed under the caption “alternative approaches”. Their common feature is the inclusion of both di- 6 Introduction mensions of liquidity –“marketability” and “liquidity risk” – within one figure. The Chapter closes with the analysis of the relations between the discussed measures. The fourth Chapter concentrates on the actual goal of the work – the specification of methods for including liquidity as a criterion in investment decisions.

In contrast, the interest of investors is more practical and focuses on the consequences of liquidity for investment activity. For this purpose, the fact of an asset being more or less liquid than another asset can be taken as given; the key question is how to allow for this fact in the investment strategy in order to ensure optimal results? Yet, despite different perspectives both researchers and investors are concerned with one and the same issue and their interests are, in fact, complementary.

8. Keynes (1930), p. 67. , Hicks (1962), Miller (1965), or Lippman/McCall (1986) offer extensive discussions on the precise meaning of the Keynes’ liquidity definition. 1 Definition of Liquidity 11 Table 1-1: Definitions of liquidity on the internet5 • • • • • • • • • • • • • 5 The ease with which an asset can be turned into cash. com/im/glossary/ …ability to buy or sell an asset quickly and in large volume without substantially affecting the asset's price. Shares in large blue-chip stocks like General Motors or General Electric are liquid, because they are actively traded and therefore the stock price will not be dramatically moved by a few buy or sell orders.

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