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Liquidity Preference and Information

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  • Sandeep Kapur

    (Department of Economics, Mathematics & Statistics, Birkbeck)

Abstract

This paper explores the link between anticipated information and a preference for liquidity in investment choices. Given a subjective ordering of investment portfolios by their liquidity, we identify a sufficient condition under which the prospect of finer resolution of uncertainty creates a preference for more liquid positions. We then show how this condition might arise naturally in some standard classes of sequential decision problems.

Suggested Citation

  • Sandeep Kapur, 2010. "Liquidity Preference and Information," Birkbeck Working Papers in Economics and Finance 1008, Birkbeck, Department of Economics, Mathematics & Statistics.
    • Handle: RePEc:bbk:bbkefp:1008
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    File URL: https://eprints.bbk.ac.uk/id/eprint/7547
    File Function: First version, 2010
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    References listed on IDEAS

    as
    1. Robert A. Jones & Joseph M. Ostroy, 1984. "Flexibility and Uncertainty," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 13-32.
    2. Basu, K. & Pattanaik, P. K. & Suzumura, K. (ed.), 1995. "Choice, Welfare, and Development: A Festschrift for Amartya K. Sen," OUP Catalogue, Oxford University Press, number 9780198287896.
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