Portfolio Choice with Market Closure and Implications for Liquidity Premia

• 成果类型: Article
• 署名作者: Dai, Min; Li, Peifan; Liu, Hong; Wang, Yajun
• 署名单位: National University of Singapore; National University of Singapore; Washington University (WUSTL); University System of Maryland; University of Maryland College Park
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2014.2116
• 发表日期: 2016
• 页码: 368-386
• 关键词: portfolio choice; market closure; Volatility dynamics; Liquidity premia

摘要

Most existing portfolio choice models ignore the prevalent periodic market closure and the fact that market volatility is significantly higher during trading periods. We find that market closure and the volatility difference across trading and nontrading periods significantly change optimal trading strategies. In addition, we demonstrate numerically that transaction costs can have a first-order effect on liquidity premia that is largely comparable to empirical findings. Moreover, this effect on liquidity premia increases in the volatility difference, which is supported by our empirical analysis.