For instance, if [theta] is no longer set to 1, the liquidity premium
theory resumes its rich dynamics.
Compared with the beginning of 1999, the liquidity premium
in 10-year TIPS has declined about 0.24 percentage point, while the liquidity risk premium in the 5-year TIPS has declined only 0.08 percentage point.
Hence, according to this clientele theory, the liquidity premium
([r.sup.*j] - [r.sup.f]) + [[mu].sup.j] [C.sup.i] / [P.sup.i] for relatively illiquid securities arise largely from the rents ([r.sup.*j] - [r.sup.f]) and less from the amortized spread because the relevant [[mu].sup.j] is small.
(22.) Christenson (2001) argues that the two GSEs plan to issue sufficient subordinated debt so that the liquidity premium
should be tiny.
When attempting to estimate the size of New Zealand's default and liquidity premium
versus the United States it is important to recognise that default premia are likely to depend on the time until maturity.
Failure to adjust for a liquidity premium
would represent a major flaw in an appraisal report on a company without equity and that is actively traded in the market.
The Fed introduced the TAF based on the belief that the increase in the spreads between term LIBOR rates and equivalent-term Treasury or OIS rates at the onset of the financial crisis was due to an increase in the liquidity premium
in the interbank market.
These market measures are subject to different premia such as a liquidity premium
, and the 5-year, 5-year measure tries to minimize such effects.
Some 69 per cent of participants think that the "liquidity premium
of hedge fund strategies will disappear and that performance will fall" when hedge fund strategies are structured as UCITS.
This implies that on average, investors demand a risk or liquidity premium
for holding TIPS rather than nominal Treasuries.
The challenge is to work out how to benefit from current "abnormal pricing"; three areas need investigation: the liquidity premium
; debt and credit markets; and the market timing opportunities in both equities and commodities.
Whereas all previous studies used a measure of liquidity as a factor, Liu (2004b) uses a factor-mimicking stock portfolio that reflects the liquidity premium
, constructed in a similar way to the Fama-French SMB and HML factors.