We show that the endogenous stochastic process of the liquidity of securities is as important to investment and valuation as the exogenous stochastic process of their cash flows. We develop a general-equilibrium model with heterogeneous investors who have an every-day motive to trade and pay...

We show that the endogenous stochastic process of the liquidity ofsecurities is as important to investment and valuation as the exogenous stochastic process of their cash flows.We develop a general-equilibrium model with heterogeneous investors who have an every-day motive to trade and pay...

Alternative assets, such as private equity, hedge funds, and real assets, are illiquid and opaque, and thus pose a challenge to traditional models of asset allocation. In this paper, we study asset allocation and asset pricing in a general-equilibrium model with liquid assets and an alternative...