Economics, Econometrics and Finance
4 years ago

Optimal trading strategies boost long-term investor profits with diverse assets.

Mathematical Finance
INVESTING WITH LIQUID AND ILLIQUID ASSETS
Maxim Bichuch, Paolo Guasoni

Paper Summary

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Long-term investors can optimize their trading strategies by balancing safe, liquid, and illiquid assets. Having liquid assets helps diversify and hedge against risks, reducing the need for trading illiquid assets. When the illiquid asset is close to its ideal weight, the liquid asset's weight decreases to maintain stability. Multiple liquid assets lead to separate portfolios for safe, myopic, illiquid, and hedging purposes.