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 ?
When thinking about safety and liquidity premiums, Jonathan Wright stressed the importance of asking, safety and liquidity relative to what?
They also reflect inflation and liquidity premiums, and the fact that financial markets have been quite volatile recently may have affected these premiums.
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.
Once yields, risk spreads, volatility or liquidity premiums get so low, there is less and less incentive to take risk.
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.
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.
After all, credit spreads measured as differences in yields between risky bonds and Treasury bonds reflect not only credit risk but also liquidity premiums, tax differences between corporate and U.