asset cannot be traded for intervals of uncertain duration. Illiquidity leads to increased and state-dependent risk aversion …, and reduces the allocation to both liquid and illiquid risky assets. Uncertainty about the length of the illiquidity …

the regimes are small for moderate levels of risk aversion, and the intertemporal hedging demands induced by time …

-varying opportunity sets, but unless investors are unreasonably risk averse, optimal holdings include unreasonably large equity positions …