  We study portfolio selection in a model with both temporary and transient
price impact introduced by Garleanu and Pedersen (2016). In the large-liquidity
limit where both frictions are small, we derive explicit formulas for the
asymptotically optimal trading rate and the corresponding minimal leading-order
performance loss. We find that the losses are governed by the volatility of the
frictionless target strategy, like in models with only temporary price impact.
In contrast, the corresponding optimal portfolio not only tracks the
frictionless optimizer, but also exploits the displacement of the market price
from its unaffected level.
