TY - JOUR T1 - Forced Liquidations, Fire Sales, and the Cost of Illiquidity JF - The Journal of Private Equity SP - 45 LP - 57 DO - 10.3905/jpe.2016.20.1.045 VL - 20 IS - 1 AU - Richard R. Lindsey AU - Andrew B. Weisman Y1 - 2016/11/30 UR - https://pm-research.com/content/20/1/45.abstract N2 - Seeking diversification, institutional investors are often drawn to investment opportunities that are relatively illiquid, taking for granted that they will receive a liquidity premium that compensates them for the lack of liquidity. Forced liquidations typically occur when illiquid portfolios become overvalued relative to their true market value and the reported valuation is no longer credible. When a forced liquidation occurs, the significant associated costs are obvious and easy to take into account. But there is a rarely recognized cost that investors should apply to illiquid investments’ expected return before such an event. This article presents a simple option-adjusted return for evaluating the cost of such illiquidity.TOPICS: Private equity, financial crises and financial market history, portfolio construction, statistical methods ER -