Liquidity premium

From ACT Wiki
Jump to navigationJump to search


A term used to explain a difference between two types of financial securities, for example stocks, that have all the same qualities except liquidity.


A premium that investors will demand when any given security can not be easily converted into cash, and converted at the fair market value.

When the liquidity premium is high, then the asset is said to be illiquid, which will cause prices to fall, and interest rates to rise.

See also