RT Journal Article SR Electronic T1 Liquidity-Driven Dynamic Asset Allocation JF The Journal of Portfolio Management FD Institutional Investor Journals SP 102 OP 111 DO 10.3905/jpm.2013.39.3.102 VO 39 IS 3 A1 James X. Xiong A1 Rodney N. Sullivan A1 Peng Wang YR 2013 UL https://pm-research.com/content/39/3/102.abstract AB The authors propose a model of portfolio selection that adjusts an investor’s portfolio allocation in accordance with changing market conditions and liquidity environments. They found that market liquidity provides a useful leading indicator in dynamic asset allocation. Specifically, market-liquidity risk-premium cycles anticipate economic and market cycles. Investors can therefore avoid markets with low liquidity premiums, waiting for more favorable circumstances to extract liquidity risk premiums. The result meaningfully enhanced portfolio performance through economic and market cycles, and is robust to transactions costs and alternate specifications.TOPICS: Portfolio construction, factor-based models, in markets