TY - BOOK ID - 136551952 TI - Liquidity Regimes and Optimal Dynamic Asset Allocation AU - Collin-Dufresne, Pierre. AU - Daniel, Kent D. AU - Saǧlam, Mehmet. AU - National Bureau of Economic Research. PY - 2018 PB - Cambridge, Mass. National Bureau of Economic Research DB - UniCat UR - https://www.unicat.be/uniCat?func=search&query=sysid:136551952 AB - We solve a portfolio choice problem when expected returns, volatilities and trading-costs follow a regime-switching model. The optimal policy trades towards an aim portfolio given by a weighted-average of the conditional mean-variance portfolios in all future states. The trading speed is higher in more persistent, riskier and higher-liquidity states. It can be optimal to overweight low Sharpe-ratio assets such as Treasury bonds because they remain liquid even in crisis states. We illustrate our methodology by constructing an optimal US equity market timing portfolio based on an estimated regime-switching model and on trading costs estimated using a large-order institutional trading dataset. ER -