This paper analyzes optimal investment decisions, in the presence of non-redundant hedge funds, for investors with constant relative risk aversion. Factor regression models with optionlike risk factors and no-arbitrage principles are used to identify and estimate the market price of hedge fund...

Transaction costs have declined over time but they can increase considerably when funding liquidity becomes scarce, investors’ fears spike or other frictions limit arbitrage. We estimate bid-ask spreads of thousands of firms at a daily frequency and put forward these large movements for...