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Real estate, private equity, arts, and even wine are gaining increasing popularity as capital investments. Attractive risk-return profiles and high diversification potentials make them valuable additions to investment portfolios. Their main drawback, however, is the low level of liquidity. Such assets cannot be bought or sold quickly without compromising large portions of their value. Despite its high practical relevance, this issue has so far received only little attention from researchers. Jaroslaw Morawski offers a practicable and theoretically well-founded solution to the problems encountered when investing in illiquid assets. Building on the Theory of Search, the author develops a model of the liquidation process for this category of investments. He uses the model to propose a number of methods for measuring liquidity, optimizing exit strategies, and allowing for liquidity in the traditional mean-variance portfolio selection. The result is a coherent investment decision framework designed specifically for private real estate but applicable also to other illiquid assets.

Liquidity (Economics) --- Real estate investment. --- Assets, Frozen --- Frozen assets --- Finance. --- Macroeconomics. --- Economics. --- Macroeconomics/Monetary Economics//Financial Economics. --- Finance, general. --- Investment in real estate --- Real property investment --- Investments --- Land speculation --- Real estate business --- Finance --- Funding --- Funds --- Economics --- Currency question

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“The central task of financial economics is to figure out what are the real risks that drive asset prices and expected returns.” (John Cochrane in Asset Pricing, 2001). The ongoing debate in the financial economics literature between rational and irrational asset pricing theories highlights the importance of this task. Gaston Michel aims at supporting the rational asset pricing story: higher asset returns must be associated with lower prices and higher risk exposure. In particular, he investigates whether shocks to real estate markets constitute an important source of the risk that is priced in the cross section of equity returns. His results document that real estate risk explains a large part of the cross-sectional variation in equity returns and captures most of the information in the prominent Fama and French (1993) size and book-to-market factors. In fact, he shows that an alternative model that which includes the real estate factor performs as well as or better than the Fama-French model in pricing equity returns.

Consolidation and merger of corporations. --- Investments -- Mathematical models. --- Investments. --- Finance --- Business & Economics --- Investment & Speculation --- Finance - General --- Banking --- Capital assets pricing model. --- Real estate investment. --- Real estate development --- Capital assets pricing model --- Finance. --- Capital asset pricing model --- CAPM (Capital assets pricing model) --- Pricing model, Capital assets --- Development, Real estate --- Developments (Real estate) --- Land development --- Investment in real estate --- Real property investment --- Public finance. --- Economics. --- Public Economics. --- Finance, general. --- Investments --- Land speculation --- Real estate business --- Capital --- Land use --- Land subdivision --- Mathematical models --- Funding --- Funds --- Economics --- Currency question --- Cameralistics --- Public finance --- Public finances