Abstract

We study the link between illiquidity and co-movement in illiquidity and the way asset managers trade off illiquidity and co-illiquidity in their portfolio allocation decision. By exploring two experiments – the 2005 SHO Regulation and 2016 Tick Size pilot program – we document the way fund managers manage co-illiquidity risk and the implication for the market degree of illiquidity and co-illiquidity.

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