Any feedbacks?...mathematically conceivable?Thanks

Depends on the strategy. Eg. If I'm running a stat arb fund that turns over its relatively small positions every five days, I am very liquid. I can exit without much market impact in a day. If I'm taking big positions in less liquid stocks or OTC positions, then...Again, if I come across something then I'll post it.

QuoteOriginally posted by: annesophieAny feedbacks?...mathematically conceivable?ThanksNot sure about actually modelling I remember having a trader telling me the amount he expected a stock to drop in terms of basis points based solely on his selling of the position. This was only his intuition. Are you talking about setting risk limits that cover liquidity risk? I worked in a hedge fund in which there was high-frequency frequent turnover in publicly traded equities. Usually large positions. Traders there were limited to positions whose sizes did not exceed 50% of average daily volumes (20 day lag). Not sure if that helps or answers any of your questions or whether it wastes your time completely and confusees you even more.

Well I need to measure the liquidity risk of a FoF that consists various strategies such as convertible arb, distressed, fixed income arb, cap structure arbitrage...with that said it all comes down to the liquidity risk of underlying securities of these strategies. Thanks

Anneso, you should have a look at a paper written by Andrew Lo, in which he tries to explain serial correlation in hedge funds returns by various factors, one being illiquidity of underlyings.Lo's page

AnneSophieIf you are studying a FoF, you need to appreciate the liquidity of all fund in the FoF, of theur strategy and the possible correlation between strategiesUsually banks appreciate the risk of illiquidity by the drawdown risk, eg the max possible loss on their holding in case of crisis situation in the market like Aug 98Mat