Jump to ContentJump to Main Navigation
Dimensions of Economic Theory and PolicyEssays for Anjan Mukherji$
Users without a subscription are not able to see the full content.

Krishnendu Ghosh Dastidar, Hiranya Mukhopadhyay, and Uday Bhanu Sinha

Print publication date: 2011

Print ISBN-13: 9780198073970

Published to Oxford Scholarship Online: September 2012

DOI: 10.1093/acprof:oso/9780198073970.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 27 November 2020

Liquidity Preference and Information

Liquidity Preference and Information

Chapter:
(p.191) 12 Liquidity Preference and Information
Source:
Dimensions of Economic Theory and Policy
Author(s):

Sandeep Kapur

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198073970.003.0012

Due to the recent financial crisis, the issue of liquidity has emerged. Illiquidity reflects frictions in markets, and in asset markets can arise for various reasons. This chapter analyses how the preference for liquidity is affected by the precision of anticipated information. Given a subjective ordering of investment portfolios by their liquidity, it identifies a sufficient condition under which the prospect of finer resolution of uncertainty results in a preference for more liquid positions. It then demonstrates how this condition might emerge naturally in some standard classes of sequential decision problems. The chapter considers the simplest setting whereby an agent must make choices in two periods, with the initial choice affecting the set of subsequent choices. When one has to choose between a discrete set of irreversible investments and liquid cash, greater informativeness is expected to increase the reward, other things equal, to holding liquid cash.

Keywords:   liquidity, information, investment portfolios, uncertainty, sequential decision problems, choices, liquid cash, irreversible investments

Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .