Abstract
We model the optimal liquidation behavior of a venture capital or non-diversified asset management firm faced with a sale of concentrated security holdings. As the firm?s stake is large, its sales can lead to permanent and temporary price depressions. At the optimum, the institution chooses the liquidation interval to balance the exposure to the market return variance against the impact of its own sales on the realized return. We obtain closed-form solutions for power impact functions uncorrelated with returns. We also consider market impact correlated with the return process, i.e. a case where liquidity evaporates during severe price dislocations.
JEL Codes
G32, M13
Keywords
Venture Capital, Exit, Liquidity
Recommended Citation
Dubil, Robert
(2002)
"Optimal Liquidation of Venture Capital Stakes,"
Journal of Entrepreneurial Finance and Business Ventures:
Vol. 7:
Iss.
2, pp. 65-82.
DOI: https://doi.org/10.57229/2373-1761.1091
Available at:
https://digitalcommons.pepperdine.edu/jef/vol7/iss2/6
