liquidity premium

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Liquidity premium

Forward rate minus expected future short-term interest rate.

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.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

References in periodicals archive ?

Fostering long-term finance is currently constrained by biased regulatory requirements, challenges to perform sustainability assessment on the long-term, or demand for higher risk and liquidity premiums, thus making projects less viable from an economic and finance perspective.

Why Arab banks have decided to take a new, green direction

Finally, through the liquidity channel, LSAPs can help to calm markets during times of financial stress, and lower interest rates by reducing risk or liquidity premiums. (10)

Aspects of implementing unconventional monetary policy in New Zealand

Later, Amihud and Mendelson (1989) empirically tested this phenomenon and confirmed that there exist liquidity premiums even after controlling for other systematic risk factors such as market beta and size.

Role of Liquidity in Explaining Anomalous Returns: Evidence from Emerging Market

They also reflect inflation and liquidity premiums, and the fact that financial markets have been quite volatile recently may have affected these premiums.

Survey and market measures of inflation expectations

One might think of these assets as being ordered according to the size of their liquidity premiums: government-issued cash first, then bank demand deposits, then Treasury bills and other money market instruments, and so on.

Liquidity: meaning, measurement, management

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.

Ground lease provisions--a case study for leasehold valuation

"With banks in a deleveraging mode, this could be a pivotal moment for institutional investors, whose pools of patient capital could finance infrastructure and other types of investment," McKinsey said, adding that policy could encourage greater harvesting of "liquidity premiums".

Keeping faith as crisis rumbles again

"Effectively there is a much more level playing field now and that's going to get even more advantageous to the local regional banks because a lot of European banks will see an increase in the lPs (liquidity premiums) over the next 12 months," said Perry.