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Research Insight - Case Study on Managing Portfolio Liquidity Costs - June 2013

categories: Americas, EMEAI, Risk Management Analytics, Asset Allocation and Asset Liability Management, Investing (Investment Management), Portfolio Construction and Optimization, Risk Management, RMA, Asia Pacific, Multi-Asset Class, LiquidityMetrics, Research Paper, FINGER Christopher, MAROSSY Zita, general

Rebalancing a passive portfolio can be costly.  A simple way to minimize costs is to place constraints on turnover, but this approach overlooks differences in liquidity across securities. In this case study, we demonstrate the effect of liquidity information on trading. We develop a hypothetical portfolio following an EMU sovereign bond benchmark and present a selection of rebalancing strategies, each incorporating a different degree of liquidity information.  Our example illustrates the impact of more granular liquidity data on the actual rebalancing costs that are realized. We also highlight the effect of the market impact on trading cost.


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Research_Insight_Case_Study_of_Liquidity_Metrics_June_2013.pdf