We study the optimal trading strategy of mutual funds that face both position limits and differential illiquidity. We provide explicit characterization of the optimal trading strategy and conduct an extensive analytical and numerical analysis of the optimal trading strategy. We show that the...

Extant theories on the disposition effect are largely silent on most of the related trading patterns, including the V-shape results for probabilities of buying and selling against unrealized profit. On the other hand, portfolio rebalancing and learning have been shown to be important, even for...

The current capital gains tax law stipulates that the tax rate for short-term investment (gains and losses) and long-term losses is equal to an investor's marginal ordinary income tax rate, which implies that this rate for low income investors can be significantly lower than that for high income...

Extant theories on the disposition effect are largely silent on most of the disposition-effect related trading patterns, including the V-shaped probabilities of buying and selling against unrealized profit. On the other hand, portfolio rebalancing and learning have been shown to be important,...

Mutual funds are often restricted to allocate certain percentages of fund assets to certain securities that have different degrees of illiquidity. However, the existing literature on how mutual funds should trade has largely ignored the coexistence of position limits and differential illiquidity...