4 ms·
Thanks for pointing that out. My point is not that the liquidity premium will go negative, but that there could be just as much (or as little) premium for illiq
by akharris 16y ago
Thanks for pointing that out. My point is not that the liquidity premium will go negative, but that there could be just as much (or as little) premium for illiquid assets as for liquid assets when SWFs are driving force in the market.
- eru 16y agoAre we using the same definitions? I thought the liquidity premium is the differential in return people are willing to incur for the convenience of liquid over illiquid assets? What meaning of premium are you using? I want to make sense of "[...] just as much (or as little) premium for illiquid assets as for liquid assets [...]". Thanks.
- akharris 16y agoSame definition. Right now markets pay a premium for the convenience of liquid assets as you say. What I'm saying is that the investment profiles of the SWFs may lower that premium/raise the price of illiquid assets such that the two are effectively the same price. Feels like two sides of the same coin. I could probably have been clearer, but I kindof liked the way the title sounded. Appreciate the feedback.
- Retric 16y agoPerhaps a better way of stating it would be: Illiquid investments currently need to pay a premium over their more liquid counterparts. However, an increase in long term investors may reduce this requirement over time.
- eru 16y agoYes, that's clear. The clever title "Illiquidity premium" is OK.