This paper proposes a portfolio choice model in which investors are subject to liquidation risk and face higher costs in the event of joint liquidation (as was observed during the crisis of 2008-2009). The risk of joint liquidation creates an incentive for investors to choose heterogenous...

We develop a model of portfolio choice capable of nesting the views of Keynes, advocating concentration in a few familiar assets, and Markowitz, advocating diversification across all available assets. In the model, the return distributions of risky assets are ambiguous, and investors are averse...