liquidity premium

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Liquidity premium

Liquidity Premium

The rate of return that an investor expects above other rates or return in order to make an illiquid investment. All other things being equal, an investor generally expects a higher return for investing in something that may be difficult to convert to cash. For example, an inactive bond may pay a higher coupon rate than an active bond with a similar credit rating.

liquidity premium

The extra return demanded by investors as compensation for holding assets that may be difficult to convert into cash. For example, bonds that seldom trade should offer a higher yield to maturity compared to actively traded bonds of similar maturity and credit risk.
References in periodicals archive ?
As for whether risk management precautions taken to manage liquidity risk might hamper returns, despite higher liquidity premiums, Mr.
They also reflect inflation and liquidity premiums, and the fact that financial markets have been quite volatile recently may have affected these premiums.
However, despite the significant developments in Solvency II, all companies have generally used the same methodology to derive liquidity premiums as that used at the end of 2012.
A study of liquidity for real property during 1970-1988, conducted by David Leggett, found mean liquidity premiums of 288 basis points to 370 basis points.
Credit union management teams should earn liquidity premiums for being a long-run investor and liquidity provider, originate quality loans and diversify them into a portfolio, and develop a core funding base and service clients.
Granted, Chairman Bernanke has frequently admitted as much but cites the hopeful conclusion that once real growth has been restored to 'old normal,' then the financial markets can return to those historical levels of yields, carry, volatility and liquidity premiums that investors yearn for.
Importantly, for the issue of whether CLR's counterfactual results are evidence of the success of the TAF in reducing liquidity premiums, the estimate of [[bar.
When liquidity falls, liquidity premiums rise, since investors become more fearful that their securities may not find buyers.
The availability of real-time information about yields and turnover would be beneficial for all investors & corporate issuers, facilitating them a benchmark on their upcoming corporate bonds or funding requirements and reduction in cost of borrowing due to reduced liquidity premiums and wider investor base, he added.
The availability of real-time information about yields and turnover will be beneficial for all investors & corporate issuers, facilitating them to benchmark on their upcoming corporate bonds or funding requirements and reduction in cost of borrowing due to reduced liquidity premiums and wider investor base, he added.
To understand these phenomena, it is useful to distinguish three major influences on inflation-indexed bond yields: current and expected future short-term real interest rates; differences in expected returns on long-term and short-term inflation-indexed bonds caused by risk premiums (which can be negative if these bonds are valuable hedges); and differences in expected returns on long-term and short-term bonds caused by liquidity premiums or technical factors that segment the bond markets.
Following Wurgler and Zhuravskaya (2002) and Fama (1985), we use a supply-and-demand paradigm to discuss liquidity premiums and the effect of substitute assets on these premiums.