An operational measure of liquidity

Economists' view of liquidity is askin to Supreme Court Justice Stewart's View of hard-core pornography: I shall not ... attempt further to define (it) .... But I know it when I see it. Embedding the process of selling an asset in a search environment enables us to provide an exact definition of liquidity: an asset's liquidity is the expected time until it is sold while pursuing an optimal (in the sense of maximization of expected discounted net proceeds) policy. Our analysis reveals that this definition is compatible with most other notions of liquidity and, in particular, with those of Keynes1 , impatience, the discount associated with a quick sale, and predictability

Project design with limited commitment and teams

We study the interaction between a group of agents who exert effort to complete a project and a manager who chooses its objectives. The manager has limited commitment power so that she can commit to the objectives only when the project is sufficiently close to completion. We show that the manager has incentives to extend the project as it progresses. This result has two implications. First, the manager will choose a larger project if she has less commitment power. Second, the manager should delegate the decision rights over the project size to the agents unless she has sufficient commitment power

Liquidity and the drivers of search, due diligence and transaction times for UK commercial real estate investments

Trading commercial real estate involves a process of exchange that is costly and which occurs over an extended and uncertain period of time. This has consequences for the performance and risk of real estate investments. Most research on transaction times has occurred for residential rather than commercial real estate. We study the time taken to transact commercial real estate assets in the UK using a sample of 578 transactions over the period 2004 to 2013. We measure average time to transact from a buyer and seller perspective, distinguishing the search and due diligence phases of the process, and we conduct econometric analysis to explain variation in due diligence times between assets. The median time for purchase of real estate from introduction to completion was 104 days and the median time for sale from marketing to completion was 135 days. There is considerable variation around these times and results suggest that some of this variation is related to market state, type and quality of asset, and type of participants involved in the transaction. Our findings shed light on the drivers of liquidity at an individual asset level and can inform models that quantify the impact of uncertain time on market on real estate investment risk