1.1 Background of Study The concept of liquidity has been a complex financial concept. However, the characteristics of asset that are liquid are observable. In its simplest form, liquidity implies the ease at which a financial asset trades. Liquidity of any market is characterized by the ability of investors to buy and sell securities easily. Illiquidity occurs when an asset or securities cannot be transacted quickly and converted into cash (Clark 2008). According to Pastor and Stambaugh (2002), liquidity denotes the ability to trade large quantities quickly, at low cost, and without moving the price. Liquidity plays a great role in attempting to resolving a number of asset pricing puzzles such as the small-firm effect, the equity premium puzzle, and the risk-free rate puzzle (Amihud, Mendelson and Pedersen, 2005). Liquidity is generally described as the ability to trade large quantities quickly at low cost with little price impact. There are four dimensions associated to this definition of liquidity, namely, trading quantity, trading speed, trading cost, and price impact (Liu, 2006). According to Pastor and Stambaugh (2002), the …show more content…
Generally, the concept connotes a favorable and desired function that reflects a well-organized and functional financial market. According to Gabrielsen, Marzo and Zagaglia (2011), a market is said to be liquid when the prevailing structure of transactions provide a prompt and a secure link between the demand and supply of assets, thus delivering low transaction costs. Researchers have not been able to come up with unique definition of the term liquidity that would possibly capture all the properties of liquidity. Most the researchers such as Wyss (2004) tend to think that the reason of a unique definition is due to the fact that liquidity has several dimensions. Liquidity concept is also a complex concept that can be defined in several different
Harris, Larry (2003). Trading and Exchanges: Market Microstructure for Practitioners. Oxford University Press. p. 290.
Liquidity premium theory – It is a theory that suggested that the yield of securities in one mature have influence on the yield of another securities. The investors are willing to invest in long-term securities as long as they are provided liquidity premium as compensation due to their long exposure to the long-term risk. As a result of this compensation, the investors are more motivated to in long-term securities. Hence, creating an upward sloping yield curve.
Assuming that there are no costs applied, and the investors have the ability to buy and sell securities and they also have the knowledge of any change; no costs for buying or selling of securities for brokers for example. Modigliani and Miller’s assumption is that all of these capital market factors which is needed for trading of securities are all perfect.
The Federal Reserve System is the central bank and monetary authority of the United States. The Federal Reserve was authorized to ensure sufficient money and credit in the banking system as it was needed in order to grow the economy. The Federal Reserve System was implemented in 1913 in order to reduce panic that the banks are going to steal money. The Federal Reserve has many tools to achieve their goal of controlling and improving the United States central banks and monetary decisions. There are three major monetary tools that the Federal Reserve uses that affects the money supply. These three major tools are open-market operations, discount rate, and reserve requirements. Without these tools the Federal Reserve would have no basis and would
...y with abundant liquidity: a new operating framework for the Federal Reserve. Policy Brief PB14, 4.
I. Introduction. How to use a symposia? The "subprime crisis" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain on a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis.
Numerous amounts of people have financial problems when they get out of high school, so what should the school board do? In 2007, thirty-four out of fifty states have personal finance courses in their curriculum (Bernard 4). A financial literacy course seems to be what a majority of states are doing. Financial literacy courses have their pros and their cons just like everything else. Financial literacy courses bring up some very important questions.
High school seniors takes deep breaths and parade onto the stage. The beginning of a new chapter awaits as they make the journey from one point of the stage to the end. They reflect on what they have been taught in those many years of high school. The most terrifying fact while graduating high school is the next step: making it on their own. Because they have taken part in the appropriate classes, the students are certain that they have gained the correct knowledge to begin making their mark on the world. In high school, it is crucial to achieve the appropriate classes in order to feel ready to take on the world ahead as an adult. However, many students lack proper education. One key example is financial literacy. Financial literacy is the
Ritter, Lawrence R., Silber, William L., Udell, Gregory F. 2000, Money, banking, and Financial Markets, 10th edn, USA.
There are two main ways to raise money for a project, growing business, or startup company: debt financing and equity financing. Debt financing includes long-term loans, while equity financing is the process of raising capital through the sale of shares in an enterprise. It is essentially the sale of an ownership interest to raise funds for business purposes.
Chapter 11 closes our discussion with several insights into the efficient market theory. There have been many attempts to discredit the random walk theory, but none of the theories hold against empirical evidence. Any pattern that is noticed by investors will disappear as investors try to exploit it and the valuation methods of growth rate are far too difficult to predict. As we said before the random walk concludes that no patterns exist in the market, pricing is accurate and all information available is already incorporated into the stock price. Therefore the market is efficient. Even if errors do occur in short-run pricing, they will correct themselves in the long run. The random walk suggest that short-term prices cannot be predicted and to buy stocks for the long run. Malkiel concludes the best way to consistently be profitable is to buy and hold a broad based market index fund. As the market rises so will the investors returns since historically the market continues to rise as a whole.
The cost of changes is divided into several groups, which include various elements associated with the stages of investment in the project.
A few sources of finance are short term and ought to be paid back within a year. Other sources of finance are long term and can be paid back over several years.
Generally, in economics, the meaning of market is the collective sellers and buyers of a particular service or good and the dealings amidst themselves.
I am currently majoring in Finance Management. Most of the time people think of finance as just managing money. However, finance is needed for so much more! The finance industry deals with starting businesses, developing new products, expanding markets, as well as everyday things like saving for retirement, purchasing a home, and even insurance. The stock market, asset allocation, portfolio analysis, and electronic commerce are all key aspects in finance. In this paper, I will explain how these features play a vital role in the industry, along with the issues that come with these factors.