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Liquidity Risk of Private Assets: Evidence from Real Estate Markets
Author(s) -
Cheng Ping,
Lin Zhenguo,
Liu Yingchun
Publication year - 2013
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12020
Subject(s) - market liquidity , liquidity risk , real estate , business , asset (computer security) , liquidity crisis , accounting liquidity , finance , financial system , monetary economics , financial economics , economics , computer security , computer science
Investment in thinly traded private assets involves liquidity risk. Existing literature provides limited guidance as it mainly focuses on publicly traded security assets such as stocks and bonds. This paper develops an analytical tool for quantifying liquidity risk of private assets. Using commercial real estate as a model asset and under reasonable assumptions, we find that the magnitude of liquidity risk is too large to be ignored, especially in down markets when liquidity risk is a great concern.