Markets do not select for a liquidity preference as behavior towards risk
AbstractTobin (1958) has argued that in the face of potential capital losses on bonds it is reasonable to hold cash as a means to transfer wealth over time. It is shown that this assertion cannot be sustained taking into account the evolution of wealth of cash holders versus non cash holders. Cash holders will be driven out of the market in the long run by traders who only use a (risky) long-lived asset to transfer wealth.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 30 (2006)
Issue (Month): 2 (February)
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Other versions of this item:
- Thorsten Hens & Klaus Reiner Schenk-Hoppé, . "Markets Do Not Select For a Liquidity Preference as Behavior Towards Risk," IEW - Working Papers 139, Institute for Empirical Research in Economics - University of Zurich.
- Thorsten Hens & Klaus Reiner Schenk-Hoppé, 2002. "Markets Do Not Select For a Liquidity Preference as Behavior Towards Risk," Discussion Papers 02-18, University of Copenhagen. Department of Economics.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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