liquidity preference


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Related to liquidity preference: Market segmentation theory

Liquidity Preference Hypothesis

A theory stating that, all other things being equal, investors prefer liquid investments to illiquid ones. This is because investors prefer cash and, barring that, prefer investments to be as close to cash as possible. As a result, investors demand a premium for tying up their cash in an illiquid investment; this premium becomes larger as illiquid investments have longer maturities. This theory is more formally stated as: forward rates are greater than future spot rates. John Maynard Keynes was the first to propose the liquidity preference hypothesis. See also: Keynesian economics.

liquidity preference

a preference for holding MONEY instead of investing it. KEYNES identifies three motives for holding money:
  1. TRANSACTIONS DEMAND: money held on a day-to-day basis to finance current purchases;
  2. PRECAUTIONARY DEMAND: money held to meet unexpected future outlays;
  3. SPECULATIVE DEMAND - money held in anticipation of a fall in the price of assets. The amount of money held for these purposes depends on two main factors: the INTEREST RATE and the level of NATIONAL INCOME. See MONEY DEMAND SCHEDULE.
References in periodicals archive ?
Keynes's Liquidity Preference Theory asserts that there are three motives for holding money--1) a transactions motive 2) a precautionary motive and 3) a speculative motive.
Keynes's Liquidity Preference Theory: Theory introduced by John Maynard Keynes in the 1930s.
To take one example, if, given a change in prices, there can be a change in excess real balances and/or a change in liquidity preference, then what happens in the real world is a function of the relative weight of the two tendencies, an empirical matter with actual results varying over time, and with interactions; one need not focus exclusively on an all-powerful Pigou effect or Keynes effect.
Aside from this focus on endogenous money and financial instability, major topics addressed by the contributions include chartalism and the tax-drive approach to money; French and Italian circuit theory; the theory of money emissions; the monetary theories of Keynes, Kalecki, Minsky, and Marx; the theory of interest rates; credit rationing; liquidity preference theory; financial liberalization and the relationship between finance and growth; financial bubbles; Keynesian uncertainty and money; speculation, liquidity preference, and monetary circulation; and a property explanation of interest and money.
The concepts analyzed in this chapter include liquidity preference theory, sticky prices and money demand, liquidity preference with motion, monetary trends, money, and separation effects.
Hunt Capital's existing investments in Prosoft include common stock, warrants to purchase common stock, a convertible subordinated note, and a liquidity preference right.
the paean to the Poles, boxes on Turing and Von Neumann (digressions within a digression) and a terrible liquidity preference pun.
Over 10,000 people turn 65 years old each day; many of these people have or will have liquidity preferences that are ill-served by annuities purchased decades before and have only recently reached the "pay-out" phase.
Sources revealed that the deal hasn't been completed yet due to issues like liquidity preferences, and the value of the deal would not be a big jump over for investors, AllThingsD reports.
According to the survey, the shift in liquidity preferences among high net worth individuals was impacting on the upper end of the art and antiques market, with surveyors reporting that sales of pieces above pounds 50,000 had collapsed.
The recovery episode from 1933 to 1937 generated research on Fed behavior and Treasury dominance, the gold sterilization program, deposit insurance, the increase in reserve requirements, and excess reserves as evidence of a liquidity trap or a shift in bank liquidity preferences.
In the coming years, the pace of growth in credit volume will be dependent on the development in the international markets and therefore, on banks' liquidity preferences.